PARSIPPANY, N.J. - Avis is buying Zipcar for $491.2 million, expanding its offerings from traditional car rentals to car sharing services.
Car sharing has become a popular alternative to traditional rentals in metropolitan areas and on college campuses, allowing members to get a vehicle quickly for short trips. Zipcar, which was founded in 2000, has more than 760,000 members. It went public in 2011 and posted net income of $850,000 in the first nine months of this year.
"By combining with Zipcar, we will significantly increase our growth potential, both in the United States and internationally, and will position our company to better serve a greater variety of consumer and commercial transportation needs," said Avis Chairman and CEO Ronald Nelson.
Bringing the Avis fleet into play will help Zipcar meet high demand on weekends, Avis said, when most people make a run to the grocery store or run other errands. It will also help Avis compete with Hertz Global Holdings Inc., which has its own car sharing service, Hertz on Demand.
Both Zipcar and Hertz on Demand park cars throughout cities and college campuses, which allow renters to avoid waiting in lines at traditional car rental counters. Some areas provide reserved parking for the cars and vehicles can be located online or through the companies' smart phone applications.
The car sharing companies also pay for fuel, a cost not included in standard car rentals. Although the hourly rental options are quicker and cheaper than renting a car by the day, Zipcar and Hertz on Demand are generally more expensive for rentals longer than 24 hours.
Avis Budget Group Inc. will pay $12.25 per share, which is a 49 per cent premium to Zipcar's closing price on Friday. The companies put the total value of the deal at approximately $500 million.
Zipcar Inc. has about 40.1 million outstanding shares, according to FactSet. It will become an Avis subsidiary and have headquarters in Boston.
Its shares jumped almost more than 47 per cent to $12.19 in premarket trading Monday.
The boards of both companies unanimously approved the buyout. If Zipcar shareholders approve the deal, it's expected to close in the spring.
Avis anticipates $50 million to $70 million in annual savings. The Parsippany, N.J.-based company also expects the acquisition will add to its adjusted earnings per share in the second year after it is complete.
Avis said that it expects certain members of Zipcar management, including Chairman and CEO Scott Griffith and President and Chief Operating Officer Mark Norman, to help run its day-to-day operations.
Avis also maintained its 2012 adjusted earnings forecast Monday of about $2.35 to $2.45 per share on revenue of approximately $7.3 billion.
Analysts predict earnings of $2.42 per share on revenue of $7.3 billion.