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Avis v. Hertz in Dollar Acquisition, Part 2: Antitrust Issues

While the rental car giants Hertz and Avis argue in public over who has the better chance to get regulatory approval to acquire Dollar Thrifty Automotive Group, investors and experts believe that it will come down to the highest bid, The Wall Street Journal reports. Those knowledgeable about the matter seem to agree that either company would face equally significant challenges in order to gain regulatory approval for a merger with Dollar. A merger between either New Jersey-based Hertz Global Holdings Inc. and Dollar or Avis Budget Group Inc. and Dollar would create serious antitrust issues, which this post will delve into.

Dollar Thrifty is the nation's fourth-largest car-rental company, Hertz is the nation's third-largest, and Avis is the second largest in the nation. This makes either potential acquisition "a four-to-three" merger. When competing companies go from four to three, the Federal Trade Commission looks very closely at that deal. Avis and Hertz have filed separately for FTC approval. Antitrust lawyers say it will likely take several months before the FTC reaches a decision whether to approve or block a merger.

Hertz has argued in securities filings that their merger would carry less regulatory risk because they operate on a higher-end area of the market, whereas Dollar Thrifty caters to the leisure-travel market, which they say Avis does considerably as well. Hertz argues that it would better maintain market competition if it merged with Dollar than if Dollar and Avis merged. Avis will likely counter that Hertz targets budget travelers with discount offers on travel Web sites.

Ultimately, antitrust lawyers say it will come down to studying the possible changes to the market for either combination of companies. Regulators will take a market-by-market approach and will examine overall share, price points, and competition in each city where the companies have a business. Regulators will look at whether prices will go up as a result of the deal, for example, if the combined companies gained control of pricing at certain airports.

If regulators determine that the deal could be bad for competition, they could require the buyer to divest assets in those markets. If Hertz was to win the acquisition, they told Dollar, via a carve-out clause in their merger agreement, that they would be willing to divest their budget-conscious Advantage Rent A Car unit. Avis would also likely have to divest certain locations of their rental-car operations. As noted in the prior post, Hertz's back-up plan if they lose the bid to buy out Dollar would be to purchase some of Avis' divested operations and build up their Advantage Rent A Car unit.



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