GM to Sell Its Stake in Avis for $800 Million

HFS Inc. said General Motors Corp. agreed Thursday to sell its stake in rental car company Avis Inc. as part of HFS’ agreement to acquire Avis for about $800 million in cash and stock.

GM, which owns preferred stock that is convertible into a 29% stake in Avis, will sell its holdings for about $232 million. GM bought the preferred stock in 1987 for $135 million.

Last week, HFS reached a final agreement with the Avis employee stock ownership plan, which owns 71% of the company, and on Monday, the International Brotherhood of Teamsters, which represents 3,000 Avis workers, endorsed the transaction.

The agreement still needs to be approved by employees; a vote is scheduled for late September.

Also on Thursday, HFS, which franchises Ramada and other hotels, filed with the Securities and Exchange Commission to sell as much as $1 billion in debt securities and/or common stock. The Parsippany, N.J.-based company plans to use the funds from the offering for general corporate purposes, which may include the repayment of debt and working capital expenditures.

Under the agreement with GM, HFS will offer Avis’ 13,500 workers $35 a share for their 9.7 million shares. The plan is managed by U.S. Trust Corp.

The Avis purchase will add a widely recognized car rental company to HFS’ stable of hotel and real estate names. HFS said last week that it plans to sell a majority stake in an initial public offering of Avis’ assets, including its cars and related debt. The Avis name would then be licensed to owners of Avis Rent A Car franchises as part of HFS’ strategy of generating revenue from fees while letting others own the operating assets. It could also provide discount packages of its services to franchisees, such as hotel rooms with rental cars.

HFS shares lost 25 cents at $61.125; GM shares dipped 25 cents at $49.375. Both trade on the New York Stock Exchange.