Avis Acquires Zipcar for $500M
Shares of Zipcar (NASDAQ: ZIP) rallied nearly 50 percent on Wednesday after it was announced that Avis Budget Group (NASDAQ: CAR) had acquired the company for $500 million, or $12.25 per share in cash.
The deal must first be approved by Zipcar shareholders, but both Zipcar and Avis expect an agreement to be reached by spring.
Avis, a car rental juggernaut, will use its cache of rental cars as Zipcar vehicles during busy holidays and for weekend demand. Zipcar, a popular car-sharing company, allows customers to rent vehicles by the hour instead of the usual daily rates.
Avis' $12.25 per share offer represented a 49 percent premium to Zipcar's Monday trading session close. The transaction will be primarily funded by Avis's available cash and extra debt –- the third largest car rental company in the U.S. has $554 million worth of cash and marketable securities.
The deal is projected to garner between $50 million and $70 million in annual synergies. “By combining with Zipcar, we will significantly increase our growth potential, both in the United States and internationally, and will position our Company to better serve a greater variety of consumer and commercial transportation needs,” said Ronald L. Nelson, Avis Budget Group chairman and CEO, in a press release.
This isn't the first time that Avis has attempted to purchase competitors. In 2010, Avis bid for Dollar Thrifty, but later dropped out of the purchasing hunt. Hertz (NYSE: HTZ) went onto acquire Dollar Thrifty (NYSE: DTG) last year.
Zipcar was founded more than a decade ago and revolutionized the car rental industry. It quickly expanded in many major metropolitan cities across the U.S. and Canada. It went public in April 2011 and raised approximately $174 million in its offering.
It has struggled in recent years, however, due to the rising cost of gasoline prices and a higher demand for short-term rentals, which has led many traditional vehicle rental companies to adapt to the market and offer the same services.
Enterprise, for instance, the nation's largest car rental company, recently acquired Mint Cars On-Demand and PhillyCarShare in order to have a piece of the hourly car rental sharing service.
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