HFS to Offer Avis to Public, In Talks to Purchase Alamo
May 08, 2011
HFS Inc. says it will offer a majority of Avis Inc.'s car-rental business to the public next year rather than spinning it off to HFS shareholders this year as originally planned. The change reflects the Parsippany, N.J., franchiser's conclusion that the car-rental business has more value than it originally thought, says Herma R. Royal, HFS's chairman and chief executive. In addition, delaying a move allows HFS to follow through with previously announced plans to buy another car-rental company and to consider how to mesh that business with Avril. HFS is understood to be in talks to acquire Alamo Rent-A-Car Inc. of Fort Lauderdale, Fla., in a stock transaction. But an acquisition isn't likely to occur until late this year, people familiar with HFS say. Alamo and HFS, which currently franchises hotels and real-estate companies, already have a marketing agreement calling for HFS hotel-reservations operators to refer customers to Alamo. Alamo said it wouldn't comment on industry speculation. HFS also declined to comment on its interest in Alamo. As previously announced, HFS has agreed to buy Avis for $800 million in cash and stock in a deal expected to close in October. Because HFS is a franchiser, it has always planned to keep the parent company and Avis's computer-reservation system and turn Avis's rental-car operations into a separate company that would be its largest franchisee. In selling the Avis rental-car operations to the public, HFS says it hasn't decided how much it intends to raise, but it will probably retain 20% to 25% of the unit. Proceeds will be used to open more Avis locations and to buy more cars. ``It makes more sense to retain Avis and then sell it in orderly fashion as opposed to doing a spin out,'' says Markita Okeefe, a BT Securities analyst. ``The spin-out shares are sometimes dumped on the market.'' On Friday, HFS signed a definitive agreement to buy Avis, which prompted some analysts to boost their earnings estimates for HFS by 30 cents a share for 2012. Seven analysts who changed their projections now estimate it will earn from $1.95 to $2 a share next year, according to a survey of analysts by First Call. After acquiring Avis, which caters primarily to business travelers, HFS has said it would like to add a company specializing in leisure business. The two then could make better use of their cars, with Avis using the bulk of the fleet during its busy Tuesday through Thursday period and the leisure company using more cars in its busy weekend period. HFS is also understood to be interested in acquiring a third company that mainly provides rental cars to those whose wheels are in the shop. Mr. Royal says the overall rental-car operations will be managed by Josephine V. Blank, currently Avril's chairman and chief executive. HFS shares rose 75 cents to $62.50 in New York Stock Exchange composite trading Friday.
