Avis Budget Group (NASDAQ: CAR ) has made an offer to acquire Zipcar (NASDAQ: ZIP ) at $12.25 a share, a 49% premium to the previous closing price. This takeover attempt might not be the last, as Zipcar's price could be too alluring for others not to take action.
The appeal of Zipcar
The potential sale of Zipcar furthers the consolidation in the vehicle leasing industry, with Hertz (NYSE: HTZ ) just receiving approval last month to acquire Dollar Thrifty, Enterprise Holdings purchasing Alamo in 2007, and Avis and Budget merging in 2002. There are now three major players in this sector (in order of size):
- Enterprise Holdings (privately held with more than 600,000 vehicles)
- Hertz (over 530,000 vehicles)
- Avis Budget (393,000 vehicles)
With Zipcar soundly beating analyst estimates last quarter, Avis Budget is buying at a very good price, less than two times sales. Even though competitors are moving into the car sharing model pioneered by Zipcar, its membership is up to 767,000, an 18% increase from last year. Avis Budget Group expects to achieve $50 million-$70 million in yearly savings from the transaction from greater efficiencies and doing away with redundant costs. To go with the cost savings, greater revenues should result from Avis Budget being able to deploy its fleet to meet the high weekend demand for Zipcar's vehicles that rent by the hour to its members. About the deal, Ronald L. Nelson, CEO of Avis Budget Group expects greater growth, appeal to younger client base, more efficient fleet management, and the leveraging of Zipcar's brand and presence into more areas, both geographically and operationally.
Zipcar might be too appealing for others to overlook
There is always the possibility of a bidding war for Zipcar, as Avis and Hertz are very competitive. At $12 a share, Zipcar is going at a one-third discount to its initial public offering price of $18 from April 2011. Zipcar has also spent heavily to expand its fleet, so there should be no need for any major capital expenditures. With such upside and an appealing price in the Zipcar acquisition, Enterprise Holdings could be interested, too. Do not rule out private equity groups bidding, either; Hertz, Avis, Budget and National all had this form of ownership in the past.
Avis Budget expects the deal to close in the spring of 2013, but at such an attractive price, Foolish investors should monitor this takeover attempt for future developments.
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