Avis Buys Fleet Management and Fuel Card Businesses From Cendant
24 May 1999
Avis Buys Industry-Leading Fleet Management and Fuel Card Businesses From Cendant in Transaction Valued at $1.8 Billion
Transaction Enables Avis to Diversify Both the
Revenue and Geographical Base of the Company
Creates Strong Growth Opportunities for Avis, PHH and Wright Express,
Including Cross-Selling to Each Company's Extensive Corporate Customer Bases
Fleet Management Businesses Leverage Avis Strengths
In Financing and Managing Large Automotive Fleets
GARDEN CITY, N.Y., May 24 -- Avis Rent A Car, Inc.
today announced that it will acquire Cendant Corporation's
PHH and Wright Express vehicle management and fuel card
businesses. The acquisition represents a transforming event for Avis to
diversify its current car rental business, expand its revenue base, create
powerful new synergies, and bring together a senior management team that has a
wealth of fleet management and financing experience. The transaction will
extend Avis' global reach through PHH's extensive European operations.
PHH is a leading global vehicle management company. The company provides
services to over 19,000 companies in North America and Europe, including
nearly one-third of the Fortune 500 companies and 50% of the FTSE 100. A
substantial portion of PHH's revenues is generated by its fee-based fuel and
credit card business. The company's total automotive fleet exceeds 700,000
vehicles worldwide; each year it purchases approximately 140,000 new vehicles
and sells approximately 140,000 used vehicles. The company employs over 2,500
people worldwide. Wright Express provides fuel management services to
commercial customers and develops and manages private label and cobranded
fleet card programs. PHH and Wright Express will remain separate, each
independently reporting directly into Avis.
The transaction is valued at $1.8 billion. It will be funded through a
combination of debt and preferred stock, consisting of approximately $1
billion in banking facilities, $500 million in high yield securities, and
$360 million in convertible preferred stock. The transaction, which comes as a
result of an auction process among several bidders, is expected to close on or
about June 30. Although immediately accretive in cash earnings per share, Avis
estimates that the transaction will be slightly dilutive to GAAP earnings per
share in 1999, slightly accretive in 2000, and significantly accretive
beginning in 2001.
Kevin M. Sheehan, Executive Vice President and Chief Financial Officer of
Avis said, "PHH and Avis are a natural fit, since both companies principally
serve corporate clients and there are a number of opportunities to
cross-market to each other's customers -- and to better capitalize on existing
clients. That includes leveraging to PHH's benefit the strong relationships
Avis enjoys with thousands of smaller, more profitable corporate customers --
relationships which take enormous time to build. Importantly, we also expect
that PHH's information technology applications will enhance the car rental
business.
"It's also important to note that, building on our core strengths in
managing large automotive fleets, the acquisition of this complementary
business expands our business base and provides Avis with strong, annuity-like
revenue and profit growth -- giving us both fee-based and asset-based
revenues," Mr. Sheehan said.
F. Robert Salerno, President and Chief Operating Officer of Avis said, "We
intend to have PHH and Wright Express continue operating as distinct entities,
with their management teams remaining in place. They have built successful,
streamlined operations, and we look forward to their continued leadership.
Their contributions will bring Avis closer to our vision of becoming the
world's leading provider of full service automotive transportation and vehicle
management solutions."
Mark Miller, President and CEO of PHH said, "We are creating a company
that will be extremely competitive across a broad front. The unique strengths
of each company will enable us to serve a wide range of commercial customers
with innovative value added services. The team at Avis has done an
extraordinary job growing their business and delivering shareholder value, and
we are excited to be joining them in that effort."
Stephen P. Holmes, Vice Chairman of Cendant said, "In addition to the
clear advantages for Avis, this transaction provides a three-fold benefit to
Cendant. It helps to complete our strategic realignment, it provides the
benefits of the purchase price, and it enables us to continue to participate
in the upside potential of the fleet management and car rental businesses
through a larger equity interest in Avis."
PHH Information Technology Expertise to Benefit Car Rental Business
Mr. Salerno explained that PHH's powerful information technology
applications have substantial potential to benefit Avis' car rental
operations. "These systems provide corporate fleet customers with web-based
data analysis on a car-by-car basis virtually in real time, which is a
tremendous cost control tool. This capability helps build great customer
loyalty for PHH, and we believe these applications will have real value for
Avis' commercial customers," he said.
Avis estimates that PHH's advanced information technology applications
will accelerate its IT strategy by as much as three years. These applications
represent powerful cost management tools that will be valuable to Avis'
corporate rental customers.
PHH Subsidiaries to Help Bring New Market Reach to Avis
In addition to the core PHH business unit and Wright Express, Avis is
acquiring two PHH subsidiaries, Cendant Business Answers (Europe) PLC and the
Harpur Group Ltd., which Avis believes will help extend its market reach and
grow both the fleet management and car rental businesses:
-- Cendant Business Answers (Europe) PLC includes: PHH Vehicle Management,
the UK's leading vehicle management specialist; Cendant Claims Plus,
which provides accident management on behalf of major insurers and
corporate businesses; and Cendant Business Partners, specialists in
transaction processing and technology.
-- The Harpur Group Ltd. is a leading fuel card and vehicle management
company in the United Kingdom, and includes brands such as Overdrive
Business Solutions, one of the UK's leading providers of specialist
automotive business solutions. The PHH and Harpur businesses have over
1.2 million cards in use in the UK market. Wright Express adds an
additional 2 million cards, giving the company a combined reach of
3.2 million cards.
Terms of Preferred Stock Outlined
Avis will finance a portion of the purchase price by issuing $360 million
of Series A preferred stock. This will need to be ratified by shareholders at
Avis' annual meeting in 2000. According to the agreement, the terms of the
preferred stock are as follows:
The preferred stock will have an eleven-year term with a five percent
dividend rate. For the first five years the dividend will be paid-in-kind;
for the remaining six years it will be paid in cash. Cendant has a put option
on the preferred after two years, and it is callable under certain terms by
Avis after five years. The stock is convertible into common shares at a price
of $50 per share, a 41% premium to Avis' share price at the close of business
on Friday, May 21, 1999. Following the conversion, Cendant will receive an
additional 7.2 million Avis shares, increasing its stake in Avis to 34%.
Cendant's voting shares are capped, however, at 20%. The non-voting shares
would convert into voting shares if Cendant ever sells them to a third-party.
Lehman Brothers is serving as financial advisor. Chase Manhattan
Corporation and Lehman Brothers are providing financing to Avis for this
acquisition.
This press release contains statements related to future results, which
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties, including the
impact of competitive products and pricing, changing market conditions, the
ability of the Company and its vendors to complete the necessary actions to
achieve a Year 2000 conversion for its computer systems and applications: and
other risks which are detailed from time to time in the Company's
publicly-filed documents, including its Annual Report on Form 10-K for the
year ended December 31, 1998 and the quarterly report in Form 10-Q for the
period ended March 31, 1999. Actual results may differ materially from those
projected. These forward-looking statements represent the Company's
judgements as of the date of this release.
Avis Rent A Car, Inc. with locations in the United States, Canada,
Australia, New Zealand, Argentina, Puerto Rico, and the U.S. Virgin Islands,
is one of the leading car rental companies in the world. Annually, the
Company completes approximately 15 million rental transactions with a fleet
averaging approximately 205,000 vehicles, generating over $2.3 billion in
revenue.