DEALMAKERS

Paul Shim, 48, and Matthew Salerno, 35, corporate partners in the New York office of Cleary Gottlieb Steen & Hamilton.

THE CLIENT

Dollar Thrifty Automotive Group—the Tulsa, Oklahoma–based owner of Thrifty Car Rental and Dollar Rent A Car—which was spun off from Chrysler in 1997 and now has more than 1,500 locations worldwide.

THE DEAL

Park Ridge, New Jersey–based Hertz Global Holdings said Sunday it has agreed to acquire Dollar Thrifty in a deal worth $2.3 billion.

THE DETAILS

Under the terms of the agreement, Hertz will pay $87.50 in cash for each Dollar Thrifty share, an 8 percent premium over the target company’s August 24 closing price. The deal contains no termination fees and Dollar Thrifty has a “go-shop” option, which gives it 30 days to solicit alternative bids. The go-shop period ends September 25.

In conjunction with the Dollar Thrifty deal, Hertz also announced that it will sell its budget rental business, Advantage Rent-A-Car, to Franchise Services of North America and the investment banking arm of Australia’s Macquarie Group in a deal reportedly worth $16 million. The Advantage sale is contingent upon the closing of the Dollar Thrifty acquisition, which itself is subject to the approval of Dollar Thrifty shareholders and the Federal Trade Commission. Should the FTC fail to approve the deal by December 31, the companies can terminate the agreement.

THE BIG PICTURE

The agreement caps what is Hertz’s latest play for Dollar Thrifty. The two companies agreed to a $1.2 billion Hertz bid in 2010 that was later rejected by Dollar Thrifty shareholders after rival auto rental company Avis Budget Group made its own $1.3 billion offer for Dollar Thrifty as part of an ongoing bidding war. Hertz answered last year with a $2.24 billion offer, but later withdrew the bid amid concerns—which Avis had about its own offer—over whether regulators would grant antitrust approval due to overlapping budget rental operations.

Enter the sidecar deal to unload Advantage. In addition to wooing Dollar Thrifty shareholders with a sweetened offer, Hertz is betting the Advantage sale will allay regulators’ concerns over competition in the budget rental market. The New York Times points out that the deal’s lack of termination fees suggests the two companies have a high degree of confidence that the deal will win FTC approval. Meanwhile, The Wall Street Journal‘s Ronald Barusch writes that the lacks of fees, coupled with the go-shop condition, is essentially Hertz’s way of daring Avis to jump back into the bidding.

Hertz’s confidence that Avis will not step in again is likely a product of Avis’s $1 billion deal last year to acquire its former European affiliate, Avis Europe. That deal, along with Hertz’s own $930 million acquisition of vehicle leasing and management company Donlen last year, is an example of the continuing consolidation sweeping the car rental industry. The shrinking number of major companies has resulted in a car rental industry basically controlled by three top players: Enterprise, Hertz, and Avis, respectively.

Shim says Dollar Thrifty was basically “the last attractive target” among major car rental companies, and Salerno adds that any further industry consolidation is likely be limited to smaller, regional players. 

THE BACKSTORY

Shim say Cleary’s relationship with Dollar Thrifty goes back roughly seven years, when the firm won a beauty contest to land the lead role on a transaction that ultimately was not consummated. Nonetheless, the client relationship bloomed to the point where Cleary has been serving as Dollar Thrifty’s go-to outside corporate counsel ever since. Shim says the firm handles all of the client’s “large-scale corporate work,” while also advising on various corporate governance matters and financing transactions.

ON CLOSING

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