FTC Approves Hertz's Takeover of Dollar Thrifty

--FTC approves Hertz's $2.3 billion bid to acquire smaller rival Dollar Thrifty

--Agreement will allow the No. 2 and No. 4 car-rental firms by fleet size to merge

--Agency's approval is one of last steps needed to end long Dollar Thrifty takeover saga, which began in April 2010

The U.S. Federal Trade Commission has approved Hertz Global Holdings Inc.'s (HTZ) $2.3 billion bid to buy smaller rival Dollar Thrifty Automotive Group Inc. (DTG), clearing the way for them to complete the deal this year.

The agreement will allow Hertz, the No. 2 domestic car-rental company by fleet size, to pay $87.50 a share in cash to buy Dollar Thrifty, the No. 4 player in the category. Hertz is required to divest its Advantage brand, as well as some U.S. airport locations and other assets, following the closing of the Dollar Thrifty transaction.

The takeover saga for Dollar Thrifty began in April 2010 when Hertz offered to pay $1.2 billion. A bidding war ensued when Avis Budget Group Inc. (CAR) unveiled a higher offer, though Avis eventually ended its pursuit of Dollar Thrifty in September due to market volatility and to focus on a roughly $1 billion acquisition of Avis Europe PLC.

Though Hertz withdrew in October 2011 its sweetened $2.2 billion bid to acquire Dollar Thrifty, the company maintained it was interested in eventually buying the smaller rival after obtaining FTC approval. After months of speculation, Hertz launched a new offer to buy Dollar Thrifty in late August.

Observers were certain a deal between the firms would eventually win approval, though they said Hertz would need to divest the Advantage brand and other assets. The U.S. car-rental industry will now have three major players--Hertz, Avis and privately held Enterprise Holdings Inc.--down from nine a decade ago.

The Wall Street Journal reported Hertz's negotiations with the FTC were an intense process in which some people at the commission voiced demands for more concessions than the car-rental companies had anticipated. Hertz said Thursday it hopes to be able to continue operating both the Dollar and Thrifty brands at a number of the airport locations it is giving up to a third-party operator.

The FTC said Hertz has agreed to sell all of the Advantage brand and 16 Dollar Thrifty on-airport locations where Advantage doesn't yet operate to car-rental operator Franchise Services of North America Inc. (FCHA) and advisory firm Macquarie Capital. In addition, Hertz will sell another 13 Dollar Thrifty on-airport locations to those parties or another FTC-approved buyer after the deal closes.

Industry consolidation typically leads to regulatory questions about competitiveness and consumer pricing, and the FTC was particularly concerned about how the Hertz-Dollar Thrifty merger would affect consumers.

Hertz argued the deal wouldn't threaten competition as the different brands cater to a diverse set of customers. Hertz primarily targets business travelers and customers seeking high-end cars. Dollar targets mainly leisure travelers, while Thrifty is more budget-oriented.

FTC Chairman Jon Leibowitz said competitive pricing was a concern, though he said the agreement the FTC made with the companies "will ensure that consumers are not forced to pay higher prices for rental cars when they travel."

The FTC's vote approving the deal was 4-1, with J. Thomas Rosch voting no. Commissioner Rosch said he didn't believe the agreement adequately resolved the competition concerns at several dozen other airports affected by the transaction.

With the FTC approval in Hertz's rear view mirror, the company said the deal now awaits customary terms and conditions, including the acquisition of a majority of Dollar Thrifty's outstanding shares. A tender offer for Dollar Thrifty's shares is due to expire Friday, unless further extended.

Shares of Dollar Thrifty were up 0.5% to $87.45 after hours while Hertz was flat at $14.25.

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