Avis to buy Zipcar for $500m

 

Car rental company Avis Budget will buy Zipcar for about $500 million in cash to join larger rivals Hertz Global and Enterprise in the fast-growing US car-sharing market.

The offer of $12.25 per share represents a premium of 49 per cent to Zipcar’s Monday close. Zipcar’s shares were up 48 per cent at $12.16 before the bell yesterday.

“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 in a statement.

Avis has been relegated to No.3 in the $22 billion US car rental industry, after Hertz secured the No.2 spot with its acquisition of Dollar Thrifty Automotive 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 $174 million.

The company has struggled in recent times, however, as higher demand for car sharing in the face of rising gasoline prices has attracted traditional car rental companies such as Hertz and Enterprise.

Enterprise, the largest US car rental company, expanded its short-term car sharing business after it bought Mint Cars On-Demand and PhillyCarShare in 2012.

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 $50 million and $70 million in annual synergies.

Avis said it expects to fund the transaction primarily with available cash and additional debt. The company had cash and marketable securities of about $554 million as of September 30th last. – (Reuters)