This morning, Hertz car rental announced that it would be acquiring Dollar Thrifty Automotive group, creating a 9,800 location rental-car giant. The Hertz/Dollar Thrifty merger was announced this morning, and will cost Hertz about $1.2 billion in both cash and stock. The combined company will be 94.5 percent owned by Hertz stockholders, with the remaining 5.5 percent owned by Dollar Thrifty investors.
Dollar Thrifty value rising fast
When Hertz Global Holdings, the owner of Hertz Rent-a-Car purchases Dollar Thrifty, it will be paying $41 a share. Just one year ago, Dollar Thrifty was trading at less than $2 a share. In early trading on Wall Street this morning, Dollar Thrifty shares rose to more than $42 a share. Quite the turnaround for a car rental business that was floundering in low demand and bankruptcy concerns just one year ago.
Hertz plans for expansion
Once Hertz completes the purchase of Dollar Thrifty, it will be able to boast 9,800 locations and a huge rental fleet. The company has announced that it has found about $180 million in “potential cost cuts” from combining Hertz with Dollar Thrifty. This cost-cutting, combined with increased revenue from additional locations, should pull Hertz out of the losses they have been posting. In the last two years, Hertz has posted a per-share loss of between 12 and 51 cents. Hertz said it expects to return to profitability within the next two years.
With an increase in both business and leisure travel, Herz and Dollar Thrifty have seen an uptick in demand for rental car services. Rental cars have also become an alternative for many city-dwellers who need a car for only a day or two. Connect By Hertz, a car-rental service announced in 2008, is Hertz’s attempt to compete with car-sharing service Zipcar. With more lenient age requirements and more locations already in place, Hertz is able to offer wider service than Zipcar. Hertz Connect is also making inroads into the college market, where Zipcars have a strong foothold, but the 21-year old age requirement has caused frustration.