What Do Hertz and Dollar Thrifty Mean for Zipcar?

There will be more consolidation in the car rental world.

Hertz (NYSE: HTZ  ) is buying Dollar Thrifty (NYSE: DTG  ) in a $2.3 billion deal. The transaction will cash out Dollar Thrifty shareholders at $87.50 a share.

This may seem to be an anticlimactic conclusion for a love triangle that until a year ago found Hertz and Avis Budget (Nasdaq: CAR  ) vying for Dollar Thrifty's hand in marriage, but the market doesn't seem to mind. Shares of both Hertz and Dollar Thrifty moved higher late last week when fresh speculation that an agreement had been reached surfaced. Both stocks are moving higher this morning after Sunday's agreement became public.

Wait a minute. Don't acquisitions typically see the buyer taking a hit after agreeing to pay a premium for a rival?

That's often the case, but you won't find any bellyaching here. Hertz and Dollar Thrifty expect to realize $160 million in annual cost savings as a result of the combination.

It's not just about the realized synergies. There's also greater freedom in pricing. Hertz may be on the high end of mainstream rentals. Dollar Thrifty may target value-minded drivers. The combination should still firm up pricing -- or at the very least limit the discounting -- of auto rentals, and that's why even Avis Budget is moving slightly higher this morning.

Where does that leave Zipcar (Nasdaq: ZIP  ) ? Well, Hertz has become a legitimate player in the auto-sharing realm. Hertz On Demand offers the same model of rentals by the hour with gas and insurance included as Zipcar. Hertz On Demand also undercuts Zipcar by not charging membership fees and not requiring drivers to return the car to the same place where the rental started.

However, the merger still benefits Zipcar, especially if it finds Hertz focusing its attention -- for now -- on its traditional rental business. It also opens the door -- and the door is ajar -- for Avis Budget or Enterprise to approach Zipcar as a buyout candidate.

Consolidation will always be a part of this fragmented niche. Keys will get handed about.

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The Motley Fool owns shares of Zipcar. Motley Fool newsletter services have recommended buying shares of Zipcar. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Zipcar. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On August 27, 2012, at 10:41 AM, dbtuner wrote:

    Avis has IDSY with superior technology and patents. Why would they need ZIP? Hertz has only 1250 cars equipped for car sharing, Avis has 30,000, and Enterprise has maybe 1000.

    Enterprise is the only one of the big 3 who would want ZIP. Hertz is too distracted right now

    In the short term, this is probably ZIP positive

  • Report this Comment On August 28, 2012, at 4:56 PM, LTInvestorJim wrote:

    "Hertz has become a legitimate player in the auto-sharing realm."

    Rick --

    Do you know how much business Hertz has done with their On Demand service? They have quoted numbers of free memberships in their press releases, but I have not seen any mention of how much revenue they actually generate. They seem to avoid saying a number in their conference calls. Have you seen a number? Thanks.

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