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Avis beats rivals to buy Zipcar

Jan 02 2013 18:46 Reuters


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Bangalore - Car rental company Avis Budget Group Inc will buy Zipcar Inc for about $500m, surpassing larger rivals Hertz Global Holdings Inc and Enterprise Holdings Inc to become the number one player in the fast-growing US car-sharing market.

The offer of $12.25 per share in cash represents a premium of 49% to Zipcar's Monday close. Zipcar's shares were up 48.8% at $12.26 on the Nasdaq on Wednesday morning.

"We see car sharing as highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company," Avis chief executive Ronald Nelson said.

Zipcar controls about 75% of the $400m car-sharing industry in the United States. The total market is projected to reach $10bn over the next several years, Nelson said on a conference call with analysts.

Higher demand for car sharing in the face of rising gasoline prices has also attracted traditional car rental companies such as Hertz and Enterprise. 

Zipcar's business is at least five times larger than Hertz's and Enterprise's car-sharing businesses, Needham & Co analyst Kerry Rice said.

The deal will position Avis as the market leader in car-sharing services in the United States, he added.

Avis has been relegated to number three in the $22bn US car rental industry, after Hertz secured the number two spot with its acquisition of Dollar Thrifty Automotive Group in August. Avis also bid for Dollar Thrifty in 2010, but later dropped out of the race.

Zipcar, founded more than 10 years ago, pioneered car-sharing services in the US. Car sharing allows customers to rent cars at an hourly or daily rate and park in convenient reserved spots. Zipcar went public in April 2011 and raised about $174m.

Deal driver

The deal, expected to close in the spring of 2013, will add to Avis's earnings, excluding items, from the second year and is expected to generate between $50m and $70m in annual synergies.

Zipcar will operate as a unit of Avis and Scott Griffith will remain the unit's chief.

The company said it expects to fund the transaction primarily with available cash and additional debt. The company had cash and marketable securities of about $554m as of September 30.

Zipcar has more than 760 000 members, or Zipsters, with a presence in 20 cities in the US, Canada and Europe.

Citigroup is advising Avis while Morgan Stanley is advising Zipcar on the transaction.

Avis's shares were up 6 percent at $20.91 on the Nasdaq on Wednesday. Hertz shares were up 3% on the New York Stock Exchange.

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