Rising demand for car-sharing services in the U.S., in the wake of an automotive fuel price spiral, has induced car rental company Avis Budget Group Inc. to buy out car-sharing company Zipcar Inc.
The deal, estimated at about $500 million, will give Avis the top position in the U.S. car-sharing market, ahead of major players like Hertz Global Holdings Inc and Enterprise Holdings Inc.
Zipcar, founded more than 10 years ago, is a dominant player in the fast-growing car-sharing industry in the U.S. Its business is reportedly at least five times larger than Hertz's and Enterprise's car-sharing businesses.
"We see car sharing as highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company," said Avis Chairman & CEO Ronald Nelson about the deal.
Zipcar will operate as a unit of Avis and Scott Griffith will remain the unit's chief.
The car-sharing concept is becoming highly popular in the US and is indeed revolutionising the rental business, attracting young and often affluent buyers, especially in urban areas and around college campuses.
"We're targeting a generation that only knows how to buy music by the song so paying for a car by the hour is a natural for them," Nelson said. "Several key executives of Zipcar including Griffith and Chief Operating Officer Mark Norman are expected to remain with the firm."
The deal, expected to close in the spring of 2013, will add to Avis's earnings, excluding items, from the second year and is expected to generate between $50 million and $70 million in annual synergies.
Avis said it expects to fund the transaction mainly with available cash and additional debt. As per reports, the company had cash and marketable securities of about $554 million as of Sept. 30.
Citigroup is advising Avis while Morgan Stanley is advising Zipcar on the transaction.
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