Car rental company Avis Budget Group Inc. said Tuesday it will take over Avis Europe in a $1 billion deal, raising the possibility that Avis Budget may back away from a bidding war for U.S. rival Dollar Thrifty.
The move reunites Avis Europe, which separated from Avis in the 1980s, combines the Avis and Budget brands worldwide, and creates what the company said is the largest publicly traded rental car business in the world.
Avis Budget has been in a tug-of-war for more than a year with rival Hertz to buy Dollar Thrifty Automotive Group Inc., and the European acquisition is an indication that Avis Budget is moving away from the pursuit.
In a statement announcing the deal, Avis Budget said it has made progress with U.S. anti-trust regulators in talks about the Dollar Thrifty acquisition, but the European deal would be the company's priority.
"While Avis Budget will continue to monitor the Dollar Thrifty situation, the company's focus squarely will be on completing and integrating the significant acquisition of Avis Europe," the statement said.
In a conference call Tuesday morning, Avis Budget CEO and Chairman Ron Nelson would not answer questions about the status of the Dollar Thrifty acquisition. "I think that we've said all we're going to say about Dollar Thrifty," he said, adding that the company's focus is on the Avis Europe acquisition and integrating the companies.
Shares of Dollar Thrifty fell $7.27, or 9.1 percent, to $72.60 in pre-market trading Tuesday.
Avis Budget, based in Parsippany, N.J., will pay $5.16 per share, or 315 pence, for Avis Europe, based in Bracknell, England.
The bid is a 60 percent premium over the closing share price on Monday. As a result, Avis Europe shares soared 58 percent to 310.3 pence on the London Stock Exchange.
Avis Budget and Avis Europe said in the statement that they will have combined revenue of about $7 billion and operations in more than 150 countries. The companies expect to cut costs more than $30 million a year by combining operations.
Avis Europe operates in 112 countries including a joint venture, formed in 2002, with Shanghai Automotive Industry Sales Corp. Since 2003, it has held rights to operate the Budget brand in Africa, the Middle East and Europe.
Avis Europe was legally separated from Avis in 1986 and was floated on the London exchange, while remaining under the Avis brand. It was then taken private again in 1989, acquired by GE Capital Services in 1992 and floated again on the London Exchange in 1997.
Ronald Nelson, chairman and chief executive officer of Avis Budget, said the deal would give his company an increased presence in growing car rental markets in India and China.
"This transaction represents an outstanding opportunity for Avis Budget, and the acquisition of a business that we have long sought to own," said Nelson, adding he expected to achieve savings of $30 million a year.
The deal is subject to approval by Avis Europe shareholders.