Hertz is onestep closer to its longawaited prize.
More than two years after its original bid, it agreed to buy Dollar Thrifty Automotive Group for about $2.3 billion, giving it more ways to attract travellers and expand its international presence. It will also give the company a leg up against competition from an increasing number of smaller competitors.
At $87.50 per share, the deal is worth far more than any of Hertz's previous bids and about eight per cent higher than Dollar Thrifty's closing price Friday.
Nothing will change immediately for consumers. Travelers who rent through Dollar Thrifty will still visit that counter for service. In the long run, prices in many markets will almost certainly rise as the two companies streamline their operations.
Both rental companies have grown stronger and more valuable in the years since they first considered teaming up. Both stocks have almost doubled in value, and they've reported robust quarterly financial results as the volume of car rentals soared. But stillfierce competition has prevented the industry from raising prices, which has dragged on revenue. Fewer big competitors mean a better chance of higher rates.
The push-and-pull between two of the U.S.'s largest car rental companies started in 2010. Avis Budget Group was also in the mix, pursuing a bid for Dollar Thrifty for more than a year.
Avis dropped its bid nearly a year ago citing market conditions. Then, last October, Hertz dropped its bid, too. But Dollar Thrifty didn't trust the years of attempts were over. In February, it extended its shareholder rights plan known as a "poison pill" - a manoeuvre designed to deter any unsolicited attempts to take over the company - through May 2013.
More recently, it appeared Dollar Thrifty was open to another bid. Earlier this month, it urged either a "compelling offer" or an end to the "constant distraction of merger speculation."
Then last week, media reports said Hertz Global Holdings Inc. of Park Ridge, New Jersey, was considering a new bid for Tulsa, Oklahoma-based Dollar Thrifty.
Hertz expects that the acquisition will save it at least $160 million a year, while providing the opportunity for increased sales.
Hertz Chairman and CEO Mark Frissora said this deal will help it fight against a growing number of small regional rental companies popping up in airports across the country. He said those competitors, along with European rivals like Germany's Sixt doing more U.S. business, will likely cause the rate wars to continue for now.
Both Hertz and Dollar Thrifty's boards have unanimously approved the deal, which still needs antitrust clearance from the U.S.