Rental car companies reportedly talk merger
Possible deal between Dollar Thrifty Automotive Group and Vanguard Car Rental, which operates Alamo and National, could be worth $3B, newspaper says.
NEW YORK (CNNMoney.com) -- Four of the major U.S. rental car brands are discussing a merger of their two parent companies, according to a published report.
The New York Times said the talks involve Dollar Thrifty Automotive Group (Charts), which operates under those two names, and privately held Vanguard Car Rental, which operates the Alamo and National rent-a-car brands. The deal might be worth $3 billion, according to the report.
The paper said the combined operation would move into No. 3 in terms in the sector in terms of revenue, ahead of Avis Budget Group (Charts), which operates those two brands, but still behind No. 2 Hertz Global Holdings (Charts) and privately held Enterprise Rent-a-Car, the largest rental car company.
The sector was battered by the same downturn in business travel that hit the airline industry in 2001, which caused a previous owner of the National and Alamo brands, ANC Rental, to file for bankruptcy. It was purchased out of bankruptcy by Cerberus Capital Management in October 2003.
In the last two years, the car rental companies have also seen General Motors (Charts) and Ford Motor, which traditionally were willing to sell them cars at sharply lower prices to keep their assembly lines running, cut back on those fleet sales as they cut capacity in an effort to stem losses.
DaimlerChrysler (Charts), whose Chrysler Group unit once owned Dollar and still supplies it with 75 percent of its vehicles, is expected to announce its own plant closing and capacity cuts Wednesday due to losses there.
The paper says a deal could push rates for rental cars higher. The paper reports that prices have already risen in the last year to an average of $57 a day this year, from $52 a year ago, according to Abrams Consulting Group, which follows the sector.
Neil Abrams, president of the consulting group, said a merger might allow the new holding company to segment the brands to different parts of the market, which could help to lift rates by reducing choices. It could also allow the companies to cut millions in back-office operational costs.
The sector has seen much reshuffling and consolidation in recent years. Vanguard, which is still owned by Cerberus, filed to go public through an initial public offering last August but has yet to do so.
The former Cendant Group, which owned Avis Group, split up its various business units, including the Wyndham Worldwide (Charts) hotel chain and stable of real estate brands such as Century 21 and Coldwell Banker, which are now owned by the Realogy (Charts) holding company.
In a regulatory filing Feb. 6, the company said it had amended its employment agreement with CEO Gary Paxton and with other top employees, which redefined a change-of-control provision of their contract that would allow them to leave and go to a competitor. The new language keeps them under contract unless there is a change of control of more than 60 percent of the company, up from more than 50 percent.
The Times reports that a deal with Vanguard would most likely be a reverse merger, so that Vanguard would be the controlling shareholder.