DealBook: Avis to Buy Zipcar for $500 Million

4:27 p.m. | Updated

The Avis Budget Group said on Wednesday that it had agreed to acquire the car-sharing pioneer Zipcar for $500 million in cash.

The deal represents a new direction for Avis in the fiercely competitive car rental market. Rivals Hertz Global and Enterprise each have hourly rental operations that compete with Zipcar. These rentals tend to have younger, more urban customers than traditional business or leisure travelers. And the Zipcar acquisition comes just months after Hertz clinched a takeover of Dollar Thrifty Automotive group.

Ronald L. Nelson, Avis’s chief executive, acknowledged the change in a conference call with analysts on Wednesday morning, saying: “As some of you may recall, I’ve been somewhat dismissive of car sharing in the past, but what I’ve come to realize is that car sharing, particularly on the scale that Zipcar has achieved and will achieve, is complementary to our traditional business — traditional car rental model. It substantially expands our addressable market by enabling us to capture new transportation usage occasions not well served by our traditional model. It enables us to serve new, younger, more wired consumers that our existing brands don’t always connect with.”

Shares of Zipcar closed up nearly 48 percent, at $12.18. Shares of Avis also gained, rising nearly 5 percent, to $20.77.

Avis’s offer of $12.25 a share represents a premium of 49 percent over Zipcar’s closing stock price of $8.24 at the end of 2012. The company, based in Cambridge, Mass., rents vehicles by the hour or the day, and it went public in April 2011 at $18 a share.

Founded in 2000, Zipcar says it has more than 760,000 members, referred to as Zipsters. It is in 20 metropolitan areas in the United States, Canada and Europe, as well as located near many college campuses.

In November, Zipcar said that it expected to end its fiscal year with a profit of as much as $4 million — its first annual profit. That forecast came as the company reported a 15 percent gain in third-quarter revenue, to $78 million, from the year-ago period.

Avis said it expected to reap significant cost reductions in acquiring Zipcar, including savings on its fleet. It also said Avis’s fleet could meet more of Zipcar’s heavy weekend demand. Avis said it expected annual “synergies” of $50 million to $70 million.

When the deal is completed, Zipcar will operate as a subsidiary of Avis in new headquarters in Boston. Scott W. Griffith, Zipcar’s chief executive, and Mark D. Norman, its president and chief operating officer, are expected to stay on.

The venture capital firms Benchmark Capital, Greylock Partners and the AOL co-founder Stephen Case’s Revolution have been among Zipcar’s backers. Revolution is currently its largest shareholder, with a 17.1 percent stake.

In 2007, Zipcar had merged with a car-sharing rival, Flexcar.

Citigroup and the law firm Kirkland Ellis is advising Avis Budget. Morgan Stanley and the law firm Latham Watkins is advising Zipcar.

Article source: http://dealbook.nytimes.com/2013/01/02/avis-to-buy-zipcar-for-500-million/?partner=rss&emc=rss