Hertz Global Holdings has conditionally agreed to sell some of its US airport locations in a bid to win regulatory approval from the Federal Trade Commission (FTC) for its merger with rival Dollar Thrifty Automotive Group. The company is trying to ease concerns that a consolidation of these two major car hire operators will hurt consumers.
Hertz agreed to buy Dollar Thrifty in August for $2.3 billion, an 8% premium over the rival’s closing stock price at the time and over twice the initial offer it made for the operator in 2010. The FTC is worried that the company will gain too much control of the rental market – especially at US airports – and it’s facing a deadline of Friday to make a decision on the deal. Although the agreement to sell some of its airport locations hasn’t been made formal, Hertz has indicated to the FTC that it will do so in order for the merger to be approved.
Hertz had already agreed to divest its budget Advantage Rent-A-Car subsidiary to ease concerns about the low-price car rental market becoming too consolidated. The company is being bought by investment banking firm Macquarie Capital and Franchise Services of North America, which operates Xpress Rent-A-Car and U-Save Car & Truck Rental. On top of this, Hertz has made a deal to divest other assets (including airport branches) to Advantage Rent-A-Car as part of the initial agreement.
However, the FTC has brought up fresh concerns in recent weeks about if the move will be enough to satisfy competition concerns and has asked for more divestitures. It hasn’t been decided if the extra airport locations will be sold to Franchise or put up to auction for others to bid on. Sources close to the matter say some of these airport branches are at major hubs.
The approval of the merger will bring the third and fourth largest car hire groups together, creating the second biggest major rental operator in the country. The consolidated Hertz and Dollar Thrifty group will have over 10,000 locations around the world. In the year to 30 June, the companies had a collective $10.2 billion in sales and $1.8 billion in earnings before interest, taxes, depreciation and amortisation.
It will also mean that there are only three major rivals left in the market – down from nine over ten years ago. Enterprise Holdings will remain the biggest car rental group in the US – operating the Enterprise Rent-A-Car, National Car Rental and Alamo Rent a Car brands. Enterprise Rent-A-Car alone has about 6,187 locations in the US, while Hertz and Advantage Rent-A-Car have 2,500 together. Avis Budget Group has about 2,300 and Dollar Thrifty has 445 offices.
Abrams Consulting Group president Neil Abrams says that there will be three major car rental companies that control 95% of this $23 billion market, if the merger is allowed. The FTC is concerned that one company will be able to manipulate pricing if they aren’t watched carefully.
MKM Partners analyst Chris Agnew says that it feels like the FTC is coming to a conclusion. He had been fairly confident that people would think consolidating from four major companies to just three as bad. However, the industry is competitive and will remain that way.