DTAG Willing to Entertain Avis Budget Offer
TULSA, Okla. — In late-breaking news Tuesday, Dollar Thrifty Automotive Group issued a public letter to Avis Budget saying that its board is ready to entertain a substantially higher offer to acquire the company.
More specifically, the company stated, "Consistent with its obligations under the Hertz merger agreement and with its fiduciary obligations to shareholders, the Dollar Thrifty board has communicated to Avis Budget that the board is prepared to entertain a ‘substantially higher offer' to acquire Dollar Thrifty as proposed by Avis Budget on May 3.
"Separately, Dollar Thrifty said that it regrets that Avis Budget in its May 3 letter mischaracterized prior events and interactions between the two companies. Furthermore, Avis Budget's letter erroneously calculated the breakup fee with respect to the Hertz/Dollar Thrifty merger agreement, which at 3.5 percent of transaction value, is customary and consistent with precedent transactions. Additionally, Dollar Thrifty believes that the other provisions of its merger agreement with Hertz are entirely customary and consistent with applicable law," Dollar Thrifty indicated.
"While it is Dollar Thrifty's policy not to comment on matters such as those to which the Avis Budget letter pertains, the Company believed that a departure from its policy was necessary in light of the inaccuracies contained in Avis Budget's letter," the company added.
Avis' Letter to Dollar Thrifty
The letter issued publicly and sent by Avis' chairman and chief executive officer Ronald Nelson, on behalf of the Avis board, to Dollar Thrifty on May 3 said, "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 (Thompson) and I agreed to meet for dinner on April 28 to discuss a transaction between our companies, which you cancelled after the Hertz announcement.
"As you know, we at Avis Budget have on several occasions in the past expressed interest in entering into a transaction with Dollar Thrifty, yet at no stage over the last several months did you or your financial advisor engage us in any discussions about a transaction or offer to provide us with information so that we might submit a bid. I spoke with your financial advisor in early April to reiterate our interest in a potential transaction between our companies and to try to arrange a meeting, yet neither they nor you engaged us in any substantive discussions or communicated your interest in Dollar Thrifty being acquired in the near term.
"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.
"This 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 percent 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," the letter from Nelson, sent on behalf of the Avis board, concluded.
Citigroup is acting as financial advisor to Avis Budget Group and Kirkland & Ellis LLP is acting as legal counsel.