Avis Budget Inc and Avis Europe have reached an agreement on the terms of a cash acquisition of the entire issued share capital of Avis Europe by Avis Budget Inc. Avis Europe's shareholders will receive 315 pence per share which is 60.2% above yesterday's closing price. The price implies an equity value of L 636m. Based on Avis Europe’s 2010 results, the transaction value implies an EV/EBITDA (2010) of less than 7.5x after adjusting for estimated transaction synergies.
If the closing would have taken place on 31 Dec 2010, the capital gain would have equalled € 94m for D'Ieteren or € 1.7 per D’Ieteren share. The actual capital gain will differ somewhat because it will take into account the results between 1 January 2011 and the closing date.
We welcome the deal because it was our opinion that Avis Europe does not fit in D’Ieteren’s portfolio. First of all, the rental car business ishighly capital intensive. Moreover, Avis Europe does not own the brands. Avis Budget Inc owns the Avis and Budget brands. Also, the car rental industry is very competitive. D'Ieteren will become less cyclical following the disposal of Avis Europe and will be able to look for new development opportunities in the near future. D'Ieteren’s net debt, on a pro forma basis at year end 2010, will decrease by circa € 946m to circa € 877m.
On a restated basis excluding Avis Europe, D'Ieteren’s guidance of current pretax growth (group share) of at least 5% remains unchanged.
Raised target price:
We raise our target price on D'Ieteren from EUR 53 to EUR 57 and maintain our BUY rating.
[ CURRENT PRICE € 44.60 ; RATING: BUY; TARGET PRICE € 57.00 ]