Avis Inc in $1bn float
Sunday 02 March 1997
HFS, the US hotel to property group which owns Avis Inc, is understood to be preparing to accelerate plans to float off the business in order to capitalise on new investor interest in the car rental sector.
On Friday Ford said it would float a 20 per cent stake in its Hertz car rental business to raise around $600m. Later this month Avis Europe returns to the London market with a listing which will value the company at around pounds 700m.
The flotations are part of a dramatic restructuring of the car rental industry, which has seen several companies change hands and a steady weakening of the motor manufacturers' ties with the industry.
In January Ford sold Budget Rent-A-Car to its largest franchisee, Team Rental. Waye Huizenga's Republic Industries has recently bought both Alamo and National Car Rentals.
National Car Rentals was part owned by General Motors. GM is selling its stake in Avis Europe as part of that company's flotation. GM sold its 25 per cent stake in Avis Inc, when HFS acquired the US car rental business last October for $800m. Meanwhile, Chrysler is looking to sell its Thrifty Car Rental business.
The big motor manufacturers have used their relationships with car rental companies as a means of securing high-volume customers. Around two-thirds of the cars Hertz buys in the US are made by Ford. Avis has been a key customer for GM.
However, although GM is severing its investment connection with Avis Europe, the two companies have signed a five-year sales agreement which will maintain the relationship.
Industry experts believe the GM approach will ultimately be used by Ford, which will dispose of its remaining 80 per cent stake in Hertz while retaining a solid commercial relationship.
"The 20 per cent sale is Ford putting a toe in the water," one expert said. "I believe their ambition is to sell out completely."
A Ford spokesman said it was premature to speculate on a further sale of shares beyond the offer announced on Friday.
Analysts point to Ford's determination to crystallise value for shareholders and its steady return to the core business.
The decoupling of car rental companies from car manufacturers is seen as good news for the rental industry. While manufacturers have seen rental firms as outlets, this has reduced the incentive to increase rental charges. Independent car rental companies will be more inclined to try and increase rental charges.
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