CHICAGO — Hertz Global Holdings Inc. reports it has agreed to buy rival Dollar Thrifty Automotive Group for about $1.17 billion in cash and stock as it tries to expand its vacationer business.
Shares of both companies soared.
The deal will give Hertz, already the world’s largest car rental company, a third more locations around the globe, boosting its total to 9,800. More importantly, it will also give the company’s leisure segment a much needed boost.
“Together we will be able to compete even more effectively and efficiently against other multi-brand car rental companies, offering customers a full range of rental options in the U.S.,” Hertz CEO Mark Frissora said in a statement.
Hertz’s business is roughly split between vacation and business travelers, while Dollar Thifty’s customers are mostly vacationers hunting for cheap rentals.
Hertz said its bid values Dollar Thrifty, based in Tulsa, Oklahoma, at $41 per share, a 5.5 percent premium to Friday’s closing price of $38.85. The offer is made up of 80 percent cash and 20 percent Hertz stock.
Dollar Thrifty shares have recently traded at their highest prices in almost three years as the car rental industry recovers from the recession that caused business and leisure travelers alike to shelve reservations. The stock was trading at $2 a little over year ago. It was valued at less than a dollar in early 2009 as investors worried about lower demand for rentals, falling resale prices for vehicles and problems facing its main supplier, Chrysler.
Its shares hit a three-year high of $42.60 in trading Monday. Meanwhile, Hertz shares rose to a two-year high of $15.60.
Under the terms of the deal, Dollar Thrifty will become a wholly owned unit of Hertz.
Hertz, based in Park Ridge, New Jersey, expects the deal to start adding to profits immediately, and said it has already identified at least $180 million in potential cost cuts from combining the two businesses.
Separately Monday, Hertz reported a smaller first-quarter loss. The company trimmed its loss to $150.4 million, or 37 cents per share, from $163.5 million, or 51 cents per share, a year ago. Excluding one-time costs Hertz said it lost 12 cents per share. Revenue rose 6 percent to $1.66 billion from $1.56 billion.
Analysts expected a loss of 13 cents per share and $1.62 billion in revenue, according to Thomson Reuters. Analyst estimates usually exclude one-time costs.
Hertz said U.S. rental car revenue rose 10 percent due to higher prices, an increase in business travel, and better results for its Advantage leisure brand.
Analysts had forecast 44 cents per share and $7.45 billion in revenue.
Dollar Thrifty shares climbed $3.47, or 8.9 percent, to $42.32 in midday trading while Hertz shares rose $2.23, or 17.3 percent, to $15.11.