Avis seeks to boost its growth potential by purchasing Zipcar for $491.2 million. By doing so, Avis broadens its offerings from conventional car rentals to car sharing services. Many people have started to patronize car sharing instead of the usual rentals in metropolitan areas and on college campuses. The advantage is that members can promptly obtain a vehicle for quick trips.
Zipcar was founded in 2000 and it went public in 2011. It currently has over 760,000 members. Avis Chairman and CEO Ronald Nelson said that by acquiring Zipcar, the company gives its growth potential a huge boost in the U.S. as well as in other countries. He also said that the company will be better positioned to offer various consumer and commercial transportation requirements.
Avis said that by bringing together the two fleets, the high demand on weekends will be met. For each Zipcar share, Avis Budget Group Inc. will pay $12.25. This represents a 49% premium over Zipcar’s closing price on Friday. FactSet said that the companies placed the total value of the deal at around $500 million. Zipcar Inc. has about 40.1 million outstanding shares. It will serve as an Avis subsidiary and will be based in Boston.
Its shares increased by over 47% in premarket trading Monday. The buyout was approved by the boards of the two companies. Avis expects annual savings of $50 million to $70 million. Avis, which is headquartered in Parsippany, N.J., anticipates that acquiring Zipcar will add to its adjusted earnings per share in the second year after it is complete. Avis also said that for its daily operations, certain Zipcar top officials, such as Chairman and CEO Scott Griffith and President and Chief Operating Officer Mark Norman, will still be around.