Avis to Buy Cendant Corporate Lease Unit
Moving beyond its core car rental business, Avis Rent A Car Inc. said Monday it agreed to buy the corporate auto-leasing operations of Cendant Corp., its former parent, for $1.8 billion in cash and stock. Investors frowned on the deal, which also includes the assumption of $3.2 billion in debt, pushing Avis’ stock sharply lower.
Avis executives tried to put a positive spin on the transaction, saying the company would gain a foothold in Europe and financial and technical expertise in managing large fleets of cars from its purchase of PHH.
“PHH and Avis are a natural fit, since both companies principally serve corporate clients and there are a number of opportunities to cross-market to each other’s customers,” said Kevin Sheehan, Avis’ chief financial officer.
But Wall Street investors, who have been favoring car rental stocks in recent months, quickly dumped Avis shares out of concern that the company was paying a rich price for a business that was too different from its own.
Avis shares tumbled $7.38, or 21%, to close at $28 in heavy trading on the New York Stock Exchange. Despite the drop-off, the stock is still above its level in early April, when it was trading at about $25.
Other car rental companies also dabble in the fleet management business, but on a much smaller scale. PHH is one of the largest managers of fleet cars, providing services to one-third of the Fortune 500 companies.
Avis is the No. 2 company, behind Hertz Corp., in the U.S. car rental business, managing a fleet of some 200,000 cars. PHH manages cars for 19,000 companies in the United States and Europe, coordinating a massive array of 700,000 cars. Hertz shares also tumbled, losing $5.44 to close at $51.06 on the NYSE.
For Cendant, the deal gets the company further along toward its goal of shedding businesses that are outside its core strengths of franchising brands in real estate, travel and hotels. Its brands include Howard Johnson motels and Century 21 real estate brokers.
The transaction also raises cash for Cendant to buy back stock and pay down debt as the company struggles to rebuild itself after a crushing accounting scandal that brought down its chairman and several directors.
Investors pushed Cendant’s shares up 69 cents, or 3.6%, to close at $19.88 on the NYSE.
Cendant still owns the Avis name and 20% of Avis Rent A Car. It spun off the rest of the Garden City, N.Y.-based company in 1997.
Last fall, Cendant sold its consumer software business to a French media company, and earlier this year it moved its headquarters to New York from Parsippany, N.J.
Cendant also said it intends to sell its NUMA publishing arm, Central Credit, Global Refund, North American Outdoor Group, and Spark Services units and may sell Green Flag, its European roadside assistance unit. The units had combined revenue of about $316 million last year.
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Avis Detour
Shares of Avis and other major car rental companies rallied sharply in recent months in response to rising prices. Avis’ plan to buy into the corporate leasing business sent its stock plunging Monday. Monthly closes and latest:
Monday: $28.00
Source: Bridge
