Zipcar Agrees to be Bought by Avis Budget Group for $500 Million

Andrew Klips  |

Car-sharing company Zipcar, Inc. (ZIP) said Wednesday that it has agreed to be acquired by Avis Budget Group, Inc. (CAR) for $12.25 per share in an all-cash transaction valued at approximately $500 million.  The price tag represents a 49 percent premium to the closing price of Zipcar on December 31.

According to a statement by both companies, the car sharing business has grown into a $400 million industry in the United States alone and is burgeoning globally.

Zipcar now has car-sharing locations in 20 major metropolitan areas in the U.S., including places like New York City, Philadelphia, Los Angeles and Seattle, Canada and Europe as well as fleets at more than 300 colleges and universities.

Zipcar members, called “Zipsters,” share cars by paying one-time rates or discounted monthly rates through longer-term commitments to be able to quickly have access to a chosen vehicle from a Zipcar lot without the hassles typically associated with car rentals.

"By combining with Zipcar, we will significantly increase our growth potential, both in the United States and internationally, and will position our Company to better serve a greater variety of consumer and commercial transportation needs," said Ronald L. Nelson, chairman and CEO at Avis Budget Group.

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Zipcar was established in 2000 and became a public entity in April 2011.  Shares have tumbled from highs of $31.50 in the early days of public trading to as low as $5.90 late in 2012, as the Cambridge, Massachusetts-based company has struggled to record consistent profits despite notching double-digit percentage sales gains every quarter since entering the public domain.

On November 8, Zipcar reported third-quarter revenue growth of 15 percent to $78.2 million compared to the year prior period.  It also said that membership grew 18 percent to more than 767,0000 members, known as “Zipsters,” by the end of the quarter.  US GAAP net income surged for the latest quarter to $4.3 million, or 10 cents per share, from $651,000, or 2 cents per share, in the third quarter of 2011.  The latest quarter included a positive impact of $1.7 million on sale of Zero Emission Vehicle credits.

At the same time, Zipcar raised its full-year revenue guidance to a range of $275 million to $279 million.  US GAAP net income is expected to tally between $1 million and $4 million with estimates being utilized to gauge the losses resulting from Hurricane Sandy that pummeled the East Coast late in October.

Avis Budget expects to generate $50 to $70 million in annual synergies from the acquisition and expects to make the Zipcar business more profitable by combining some expenses, such as costs of being a public entity, for example.

“We are delighted to announce our intention to join the Avis Budget Group family of companies, and we believe this combination is a win across the board for our members, shareholders and employees,” said Scott Griffith, CEO and chairman at Zipcar.

The deal, which is still subject to Zipcar shareholder approval, is expected to close in the spring of 2013.  The Boards of both companies have approved the deal as well as Zipcar shareholders representing about 32 percent of the total outstanding common stock.

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