Update: Cendant Makes Bid Valued at $935 Million for Rest of Avis
Updated from 10:28 a.m. EST
Cendant (CD), the franchising giant, said Monday that it would acquire the 82% stake of Avis (AVI) that it does not already own, raising its bid for the car rental company in a deal valued at $935 million.
New York-based Cendant, known for its Days Inn hotel and Century 21 real estate brands, said it would exchange $33 in cash for each share of Avis. The agreement represents a 10% premium based on Avis' closing price of $30 a share on Friday.
And the news comes three months after Cendant
offered Avis $29 a share for the stake in a pact valued at $750 million. On the day of the announcement, shares of Avis rose 20%, sailing past the bid price, which was considered too low. Shares of Avis finished up $1.88, or 6%, at $31.88, while Cendant finished down 50 cents, or 4%, at $11.50. Meg Saegebarth, who follows Avis for Goldman Sachs, said she believed the car rental agency is worth about $35 a share, but expected Cendant to make a subsequent offer that fell somewhere between that price and its initial bid of $29 a share. The timing may be good for Cendant, which is buying the Avis stake at a time when stocks of car rental companies' are believed to be undervalued, trading five to 10 times earnings as opposed to more lofty levels of 15 to 20 times earnings in 1997. "Clearly rental car company stocks haven't worked out as well as hoped," said Saegebarth, whose firm rates Avis stock market perform and was involved in Avis' initial public offering three years ago. "And the stocks have been fairly volatile." In a similar move, Ford Motor (F) in September offered to acquire the 18.5% stake of Hertz (HRZ), another car rental company, that it did not already own. Ford offered to hand over $30 a share for the remaining stock. Hertz shares -- like Avis' stock after Cendant's original offer -- climbed above the bid price on the day of the announcement, heading even higher in the following weeks. Hertz said last month that it had hired a financial adviser to review Ford's proposal. Cendant, though, is considering more than Avis' stock price. Henry Silverman, Cendant's chairman and chief executive, said in a statement that the pact would immediately improve the company's earnings and would enhance its offline and online travel strategies. The move to acquire the shares of Avis -- spun off from Cendant in 1997 -- is expected to close in the first quarter of 2001. Garden City, N.Y.-based Avis would then become a subsidiary of Cendant. Cendant, a product of a late 1997 merger between HFS and CUC International, is trying to distance itself from widespread accounting irregularities that tarnished its image on Wall Street and triggered a precipitous decline in its stock price. But Cendant last year reached a $2.8 billion settlement with shareholders, and last summer three former CUC executives pleaded guilty to inflating profits. Cendant also has sold a number of assets and embarked on an aggressive share repurchase program in an attempt to boost its ailing stock
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