Avis Budget Group, Inc.’s (CAR) wholly owned subsidiary, AE Escrow Corporation, in an attempt to finance the purchase of Avis Europe along with meeting its fees and expenses, has recently issued $250.0 million 9.75% notes due 2020. The sale is expected to be completed by October 3, 2011. The proceeds of the sale will be placed in escrow and will be converted into senior unsecured obligations of Avis Budget Car Rental, LLC as soon as they are released.
Recently, Avis Budget announced that it is acquiring Avis Europe for 635 million pounds or $1.0 billion. After 25 years, the company again intends to unite the two businesses. The merger of the two companies will lead to operating synergies of more than $30 million a year and will allow the companies to serve their customers more effectively. The united business of Avis Budget and Avis Europe is expected to generate annual revenues of about $7 billion with operations in over 150 countries. The acquisition will particularly give Avis Budget the opportunity to grow in international markets, including India and China.
After functioning for three years as a private company, Avis Europe was jointly acquired in 1989 by General Motors, a Belgian group D’Ieteren and Avis Budget. In 1997, Avis Europe got its shares listed on the London Stock Exchange with Avis and General Motors selling their stake while D’Ieteren holding a 60% share in the company.
Avis Budget Group is the leading general-use vehicle rental company in North America, Australia and New Zealand. Moreover, a formidable network of more than 7,800 rental locations and 350,000 vehicles enables the company to strengthen its well-established position in a highly competitive vehicle rental industry.
Continued focus on productivity and cost containment initiatives, better travel trends and lower fleet costs drove Avis Budget to post better-than-expected financial results for the first quarter of fiscal 2011.
However, the company faces intense competition from other established players, such as Hertz Global Holdings Inc. (HTZ), Dollar Thrifty Automotive Group Inc. (DTG) and Ryder System Inc. (R). Consequently, the company may face challenges to maintain its high level of operating performance.
Avis Budget shares maintain a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation. Besides, the company retains a long-term Outperform recommendation.
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