Huizenga Company to Buy Alamo in $625-Million Deal
Republic Industries, a conglomerate controlled by billionaire entrepreneur Wayne Huizenga, announced Thursday that it is buying Alamo Rent A Car in a $625-million deal that would secure a supply of late-model used cars for its growing chain of auto superstores.
The move by the diversified Fort Lauderdale, Fla.-based company is part a broader effort to build a nationwide transportation service giant with operations in new and used cars, rental cars, parts and service, and auto financing.
“This is a tremendous building block for Republic,” said Mark Thimmig, an auto retailing expert with Coopers & Lybrand in Detroit.
Wall Street welcomed the deal, boosting Republic Industries shares $2.875 to $33.625 in Thursday trading on the Nasdaq market.
The deal for Alamo, the nation’s fourth-largest rental-car company, comes amid a continuing realignment of the rental-car industry. Avis and National were sold last year, and Ford acquired full control of Budget.
More significantly, the transaction provides the latest evidence of the revolution roiling the auto retailing business and threatening traditional car dealers.
Major retailers are moving into the used-car business--the most lucrative side of auto selling--with the introduction of modern superstores with huge inventories and one-price shopping. At the same time, well-heeled investors with Wall Street backing are beginning to buy up the best of the new-car dealerships in major markets, streamlining and standardizing operations.
These developments are being closely watched by the nation’s 22,300 new-car dealers as well as by domestic and foreign auto manufacturers, which are already taking steps to fend off the new competitors.
The industry is not taking Huizenga lightly. A Chicago native who once worked as a garbage man, Huizenga made a fortune by turning Waste Management into a $9-billion global company and then transforming Blockbuster Entertainment into a video rental Goliath with 4,700 outlets. He also owns the Florida Marlins, Miami Dolphins and Florida Panthers pro sports franchises.
He is building another empire with Republic. The company, with garbage, home security and advertising operations, more than tripled earnings to $37.5 million on revenues of $423 million in the first nine months of this year.
Huizenga’s vision for Auto-Nation USA is no less grandiose than his previous ventures. The company plans to open 80 used-car superstores in the next four years. AutoNation last month opened its first in Coconut Creek, Fla., acquired two others and will open four more before year’s end.
But AutoNation is not stopping with used cars. It is eyeing new-car dealerships, plans to offer auto loans and eventually will get into the lucrative parts and service business--all under the same brand name.
“The plan is for AutoNation to be a player in all areas of transportation service,” said company spokesman J. Ronald Castell.
Alamo, with a fleet of 130,000 vehicles, provides AutoNation an entry into rental cars and provides a ready supply of late-model car and trucks that are increasingly popular among today’s value-oriented consumers as an alternative to pricey new cars.
Some auto experts have questioned whether outside retailers could make inroads in the $600-billion-a-year used-car business because of possible difficulties in obtaining late-model used cars from dealers and auctions.
“This gives Huizenga the inventory he needs for his car lots,” said Maryann Keller, an analyst with Furman Selz. “He can get anything he wants and probably on better terms than the car dealers do.”
The acquisition plan comes two months after Republic unsuccessfully attempted to buy ADT Ltd., a maker of home security systems, for $4 billion. ADT also owns the nation’s second-largest auto auction.
Alamo, a privately held company 93% owned by founder and Chairman Michael Egan, who will remain at the helm, has struggled in recent years, as most car-rental concerns have. The industry was squeezed by higher vehicle prices and flat rental rates.
The company lost money last year and for the first two quarters of 1996 it lost $14.3 million on revenue of $705 million. But with a cost-cutting plan in place, the losses are narrowing and Castell said Alamo is expected to break even for the year.
In a statement, Huizenga said that AutoNation “will be able to benefit from Alamo’s strong relationships with manufacturers and other suppliers of vehicles.”
Huizenga’s next move is likely to be the acquisition of some megadealerships. “There isn’t a megadealer in the country he hasn’t talked to,” Keller said.
Dealers are increasingly exploring going public with stock offerings to help pay for expansion. United Auto Group, headed by former advertising executive Carl Spielvogel, last summer filed for an initial public offering.
And Circuit City, the electronics retail giant, plans to create a subclass of stock to raise funds to pay for the expansion of its CarMax superstore concept. The company has seven stores open and hopes to eventually have as many as 100 nationwide.
The new auto super-retailers have so far avoided California because of the high cost of real estate and tough competition from the vast auto malls dotting the landscape.
