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Merger Update

Thank you for calling the Hertz Dollar Thrifty Avis Budget car rental group

Aug 04, 2010

In 1985, the movie Back to the Future included a scene of a shop that was a combination Pizza Hut and Taco Bell. At the time it was funny and absurd. Of course, these stores actually do exist today.

Where better than the airlines to see life imitating art in the form of United and Continental, British Airways and Iberia, AirTran and ValuJet, Air France and KLM Royal Dutch Airlines, Air Canada and Canadian Airlines, Northeast and Delta, just to name but a few from a very long list.

So it seems to go also in the world of car rental companies. Dollar Car Rental merged with Thrifty Rent A Car and became the Dollar Thrifty Automotive Group. Avis Car Rental merged with Budget Car Rentals and became the Avis Budget Group. Hertz and Dollar Thrifty executed a definitive merger agreement on April 25, 2010, but we don't yet know what that group will call itself.

This is all just an interesting and maybe even amusing way to inform that the Dollar Thrifty Automotive Group CEO has responded to the Avis Budget Group CEO regarding their possible merger, and this is what the letter says:

"Thank you for your interest in our company; we were pleased to receive your letter dated July 28, 2010. Our Board of Directors has received and carefully reviewed your letter, and I would like to give you some observations based on their review.

"Under the terms of our merger agreement with Hertz, in order for Dollar Thrifty to pursue a transaction with Avis Budget, our Board must make a determination that the Avis Budget proposal constitutes a "Superior Proposal" within the meaning of that agreement. This, in turn, requires our Board to make the following three findings with respect to the transaction proposed by Avis Budget:

1. It is more favorable, from a financial point of view, to our stockholders than the Hertz merger;

2. It is supported by financing that is fully committed or reasonably likely to be obtained; and

3. It is reasonably expected to be consummated on a timely basis.

"We believe that your proposal would clearly satisfy the first of these requirements. Furthermore, we think that the draft financing commitment letters that you have furnished, when finalized in the manner described by your advisors, will provide a reasonable basis for concluding that the second requirement can be satisfied. However, we do not have sufficient information to establish satisfaction of the third prong of the requirements.

"As you are aware, our respective advisors have had numerous discussions with respect to the antitrust risks attendant to a merger of our companies. Your legal advisors have stated clearly their position, based on their econometric and other analyses, that the divestitures to which you have committed in your proposal are sufficient to remediate any competitive issues. But citing our inability to enter into a joint defense agreement with you as well as our contractual obligations to cooperate with Hertz, your advisors have been unwilling to disclose details of their data and analyses beyond their general approach to the issues.

"More problematic is Avis Budget's unwillingness to provide a reverse termination fee. As we have stated on several occasions, our Board accords substantial weight to the extent to which Avis Budget is willing to share the risk of the ultimate regulatory outcome. This is especially true where Avis Budget is unable to provide compelling objective evidence in favor of its antitrust position. Indeed, Avis Budget's unwillingness to offer a meaningful reverse termination fee can only represent to us, to the market and to any objective observer a lack of confidence by Avis Budget in its position. As you know, transaction certainty has consistently been a key criterion for Dollar Thrifty in evaluating possible transactions. We feel strongly that in order to merit favorable consideration by our Board, the relative magnitude of the reverse termination fee should be at least consistent with that of the Hertz transaction. Obviously, a fee of greater magnitude would demonstrate even greater confidence in your ability to procure antitrust approvals, as well as your willingness to take steps beyond your stated divestiture commitment to do so.

"Your advisors have suggested that there is a natural trade-off between the transaction consideration and deal certainty. Unfortunately, the "Superior Proposal" determination simply does not work in that way. Each of the three prongs must be met, and a higher price cannot compensate for a deficiency in deal certainty. But even if we could blend the factors as you suggest, Avis Budget's unwillingness to provide a reverse termination fee, coupled with your disinclination to provide analytical data supporting your antitrust position, leaves us incapable of making such an assessment.

"We stand ready to review and consider any modifications you may wish to make to your proposal (or any additional supporting information) to address these concerns."

All this means is that the merger is still on the table for discussion but nothing definitive has been decided yet.

Thank you for calling the Hertz Dollar Thrifty Avis Budget car rental group

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