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Avis to buy Zipcar as slow economy boosts car-share business

The Zipcar.com logo is seen on a Mini Cooper car during a promotional event in New York's Times Square April 14, 2011. REUTERS/Mike Segar
The Zipcar.com logo is seen on a Mini Cooper car during a promotional event in New York's Times Square April 14, 2011. REUTERS/Mike Segar

By Sagarika Jaisinghani and Tej Sapru

(Reuters) - Car rental company Avis Budget Group Inc will buy Zipcar Inc for about $500 million, surpassing larger rivals Hertz Global Holdings Inc and Enterprise Holdings Inc to become the No.1 player in the fast-growing U.S. car-sharing market.

The offer of $12.25 per share in cash represents a premium of 49 percent to Zipcar's Monday close. Zipcar's shares were up 48.8 percent at $12.26 on the Nasdaq on Wednesday morning.

"We see car sharing as highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company," Avis Chief Executive Ronald Nelson said.

Zipcar controls about 75 percent of the $400 million car-sharing industry in the United States. The total market is projected to reach $10 billion over the next several years, Nelson said on a conference call with analysts.

Higher demand for car sharing in the face of rising gasoline prices has also attracted traditional car rental companies such as Hertz and Enterprise.

Zipcar's business is at least five times larger than Hertz's and Enterprise's car-sharing businesses, Needham & Co analyst Kerry Rice said.

The deal will position Avis as the market leader in car-sharing services in the United States, he added.

Avis has been relegated to No.3 in the $22 billion U.S. car rental industry, after Hertz secured the No.2 spot with its acquisition of Dollar Thrifty Automotive Group in August.

Avis also bid for Dollar Thrifty in 2010, but later dropped out of the race.

Zipcar, founded more than 10 years ago, pioneered car-sharing services in the United States. Car sharing allows customers to rent cars at an hourly or daily rate and park in convenient reserved spots. Zipcar went public in April 2011 and raised about $174 million.

DEAL DRIVERS

The deal, expected to close in the spring of 2013, will add to Avis's earnings, excluding items, from the second year and is expected to generate between $50 million and $70 million in annual synergies.

Zipcar will operate as a unit of Avis and Scott Griffith will remain the unit's chief.

The company said it expects to fund the transaction primarily with available cash and additional debt. The company had cash and marketable securities of about $554 million as of September 30.

Zipcar has more than 760,000 members, or Zipsters, with a presence in 20 cities in the United States, Canada and Europe.

Citigroup is advising Avis while Morgan Stanley is advising Zipcar on the transaction.

Avis's shares were up 6 percent at $20.91 on the Nasdaq on Wednesday. Hertz shares were up 3 percent on the New York Stock Exchange.

(Reporting by Sagarika Jaisinghani and Tej Sapru in Bangalore; Editing by Supriya Kurane)

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