The popular with consumers and expensive for the company short-term car rental business got a boost today. Avis Budget Group Inc. (NASDAQ: CAR) announced this morning that it has agreed to acquire Zipcar Inc. (NASDAQ: ZIP) for $500 million ($12.25 per share) in cash. The price reflects a premium of 49% to Zipcar’s closing price on Monday night.
Avis’s CEO said:
We expect to apply Avis Budget’s experience and efficiencies of fleet management with Zipcar’s proven, customer-friendly technology to accelerate the growth of the Zipcar brand and to provide more options for Zipsters in more places. We also expect to leverage Zipcar’s technology to expand mobility solutions under the Avis and Budget brands.
Zipcar has struggled with profitability since going public in April 2011, and the share price has dipped 70% since then. The short-term rental, or car-sharing, business is popular in big cities and near college campuses, where Zipcar claims 760,000 members. The trouble is that expanding the business is costly due to auto purchases and leased parking agreements. It is a cash-intensive business. Avis expects to cut costs by $50 to $70 million with this acquisition, including:
[S]ignificant cost reductions across the fleet life cycle (from procurement to operations and maintenance to disposition, as well as financing), in addition to savings from eliminating Zipcar’s public-company costs. Avis Budget also plans to achieve substantial cost savings by increasing fleet utilization across the two companies. Significant revenue growth opportunities exist, including by leveraging Avis Budget’s fleet to meet more of Zipsters’ weekend demand, which is currently constrained by fleet availability.
Zipcar’s shares are up about 47% in premarket trading this morning, at $12.14, in a 52-week range of $5.90 to $16.25.