Monday, May 3, 2010

Avis jumps into the fray, offers a higher bid for Dollar Thrifty (DTG, HTZ, CAR)

I love these letters. The CEO of Avis Budget (CAR) has sent a letter to the CEO of Dollar Thrifty, expressing his anger that DTG had not entertained his offer to buy the company, and had cancelled discussions and accepted a low-ball bid from Hertz. As I'd written then:

Dollar Thrifty President and CEO Scott Thompson kept it short and sweet:
Scott L. Thompson, Dollar Thrifty's President and Chief Executive Officer, said, "The combination of Dollar Thrifty with a larger company like Hertz will provide Dollar Thrifty with greater resources and the technology needed to expand our value focused leisure brands. We see the combination of our brands with Hertz's brands as very compelling."
I'd keep my words to a minimum too, had I just agreed to a deal to sell my company, funded in part with $200million of my own shareholders' cash:

Like me, Avis management thinks DTG shareholders got a raw deal, and is prepared to make a higher offer. DTG shares are up 15% on the news, as a competing company is (kinda) creating the shareholder value that their own management could not.

Below are selected excerpts from his letter to DTG's chairman and CEO, in which Avis states its intention to make a "substantially higher offer" for the company. The ugly breakup fee may hinder the new offer, but an embarrassed DTG management might change those terms rather than face shareholder lawsuits.

Dear Scott and Tom,
I was very surprised by your April 26 announcement that you had signed a definitive agreement to be acquired by Hertz for approximately $41 per share, of which only about $34 is being funded by Hertz itself. This is particularly true given that, on April 19, a mere week before the Hertz announcement, Scott and I agreed to meet for dinner on April 28 to discuss a transaction between our companies, which you cancelled after the Hertz announcement.
It is hard to understand how your failure to engage in discussions with an interested strategic buyer, who you know also would be able to achieve significant synergies as a result of a combination, can be consistent with the fiduciary duties that you and your board carry to seek the best possible deal for your shareholders.
his failure is all the more surprising given that, at the time you signed a definitive agreement to be acquired at virtually no premium, you clearly had knowledge that published earnings estimates for Dollar Thrifty were well below the updated guidance that you were going to provide as part of your first-quarter earnings announcement after the signing. Given that the Hertz offer is primarily cash, your shareholders, in addition to being offered virtually no premium to a stock price that did not reflect favorable non-public information, would have little opportunity to participate in the substantial upside associated with your improving results, the combination-related synergies or the substantial upside we all see as the industry recovers from its recent lows.
Now that we and our advisors have had access to the terms of the merger agreement, we are astonished that you have compounded these shortcomings by agreeing to aggressive lock-up provisions, such as unlimited recurring matching rights plus an unusually high break-up fee (more than 5.25% of the true transaction value, as described by your own financial advisor), as a deterrent to competing bids that could only serve to increase the value being offered to your shareholders. Given the complete failure to conduct a pre-signing market-check of the virtually no-premium deal with Hertz, such preclusive defensive measures are clearly not supportable in this situation.
We would like to make a substantially higher offer to acquire Dollar Thrifty, especially in light of your recent performance and the potential synergies associated with an acquisition of Dollar Thrifty by Avis Budget. We are confident that the antitrust analysis and clearance timetable for an Avis/Dollar Thrifty transaction are comparable to those associated with a Hertz/Dollar Thrifty transaction. We request access to legal, financial and business due diligence information relating to Dollar Thrifty, including access to management, so that we can formulate and submit such an offer. In that regard, we would be prepared to sign an appropriate non-disclosure agreement. We also request that the egregious provisions of the merger agreement be eliminated so that a level playing field can be created.
We look forward to the opportunity to engage in productive discussions with the board of directors of Dollar Thrifty to allow its shareholders the opportunity they deserve to realize the full value of their investments in Dollar Thrifty.
/s/ Ronald L. Nelson
Ronald L. Nelson

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