Cendant in Talks to Buy Budget
Troubled car rental company Budget Group Inc. is in talks to be acquired by the parent of Avis Rent A Car System Inc., Cendant Corp., after selling its European operations, according to people close to the situation.
Budget, owner of Budget Rent a Car Corp., the U.S.’ No. 3 rental company, is expected to sell its European business for about $75million to Sixt, Germany’s largest car rental company, said a person close to the situation. After the German deal, which is expected within two weeks, talks with Cendant--which are not at an advanced stage--should heat up, the source added.
The negotiations are the latest attempts by car rental firms to cope with the slowing economy and a travel slump in the wake of the Sept. 11 attacks.
For instance, Dollar Thrifty Automotive Group Inc., owner of Dollar and Thrifty car rental franchises, said Wednesday that it would cut compensation for top executives and undertake other cost-cutting measures in view of the car rental slump.
Budget shares surged 14 cents, or 21%, to 81 cents, and Cendant ended unchanged at $19.45, both on the New York Stock Exchange.
Kimberly Mulcahy, a Budget spokeswoman, declined to comment on a possible sale to Cendant. But she said, “We continue to seek a buyer” for some operations in Germany and elsewhere.
A Cendant spokesman said the company does not comment on rumors or speculation.
Cendant and Budget have held informal talks for some time but are not in formal negotiations now, another source close to the situation said. Cendant also has looked at other car rental firms in the last 18 months, including Thrifty and ANC Rental Corp., parent of Alamo Rent A Car and National Car Rental.
Budget will become a more attractive target for Cendant once it ditches its struggling European operations, the source said. But Budget remains hampered by its high debt and a truck rental business that doesn’t fit into Cendant’s portfolio, the source added.
Cendant, a leading real estate and travel group, has been looking to expand its car rental offerings, particularly to the leisure market, where Budget is stronger than Avis, analysts said.
This year Cendant completed the purchase of shares it did not already hold in Avis for $937million.
“Cendant has been saying they want to buy another [car rental] company, but they might not get regulatory approval for a Hertz or a National,” said analyst John LeSage of Abrams Travel Data, an industry consulting firm. He said those companies, like Avis, are strong in the business market.
Budget’s current market value is about $25 million, a fraction of its value when its share price topped $38 in 1998. The company, which reported revenue of $2.4 billion last year, has debt of about $3.8 billion, much of it in car loans.
