Zipcar Waves Buy-Buy to 2012

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Zipcar (UNKNOWN: ZIP.DL2  ) , we hardly knew you.

Less than two years after going public, the car-sharing pioneer is being yanked off the market by Avis (NASDAQ: CAR  ) . It's a big short-term win for recent Zipcar investors.

But early buyers are getting burned. And shareholders who believed in the company's long-term prospects can't be too happy about the terms of the deal.

The purchase
Avis is buying Zipcar for $12.25 a share in cash, which is a 49% premium over the previous day's closing price. The rental giant expects to benefit by $50 million to $70 million annually from the deal, including the savings from "eliminating Zipcar's public company costs." In announcing the deal, Avis boasted that the buyout will make it the global leader in car sharing and in mobile rental solutions. The company also took the opportunity to reaffirm its full-year 2012 outlook, meaning this deal won't threaten its fourth-quarter results.

What it means for investors
For investors lucky enough to have bought Zipcar near the end of last year, the $12.25-per-share price will deliver a massive 105% return in just two months. Much of that rally had nothing to do with the buyout, though, as Zipcar's third-quarter results hit some positive notes, particularly on membership growth and global profitability. The stock had rallied by more than 40% before the deal was announced.

But investors who purchased the stock soon after the IPO won't be sharing in the celebration. They stand to lose around 50% of their investment.

What's worse is that $12.25 a share seems like a steal, given Zipcar's growth potential. After all, that trading price was last seen in April, just nine months ago. True, competition from Hertz (NYSE: HTZ  ) and its On Demand service is heating up. But Zipcar has still managed to boost its membership rolls by 58,000 members, or 8% better than the 709,000 it counted last spring.

Particularly on a price-sales basis, the total sticker price of $500 million looks low, coming in at about 1.8 times Zipcar's last 12 months of revenue. That's just not a lot to pay for a growing company with the lead in a profitable market. Avis got a great deal.

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