Dollar Thrifty shareholders seek delay of shareholder vote on Hertz acquisition

Judge weighs Hertz merger with Dollar Thrifty

WILMINGTON, Del. — Attorneys representing shareholders of Dollar Thrifty Automotive Group asked a Delaware judge on Wednesday to delay a vote on the rental car company’s proposed $1.2 billion acquisition by Hertz Global Holdings so it can try to negotiate a better deal with Avis Budget Group.

Dollar Thrifty shareholders are scheduled to vote Sept. 16 on the $1.2 billion cash-and-stock offer Hertz made in April.

Earlier this month, Dollar Thrifty, based in Tulsa, Okla., rebuffed a $1.3 billion cash-and-stock counteroffer from Avis, saying the proposal did not include deal protection measures or adequately address antitrust concerns.

Attorneys for the shareholders claim Dollar Thrifty’s directors have breached their fiduciary duties by rejecting the Avis bid, refusing to negotiate, and locking in a deal with Hertz.

“They’ve got a job to do, and their job is to get the best price,” shareholder attorney Stephen Grygiel told Vice Chancellor Leo Strine Jr.

“Let them have an auction,” Grygiel added. “Let’s see where they get.”

Mitchell Lowenthal, an attorney for Dollar Thrifty, defended the deal with Hertz and said Avis has yet to make a better offer. He denied suggestions that Dollar Thrifty was improperly favoring Hertz, noting that it had walked away from merger discussions three times in the past couple of years and gained concessions from Hertz in the most recent deal talks.

“This was the antithesis of some kind of sweetheart arrangement,” Lowenthal said, adding that Dollar Thrifty has not ruled out another offer from Avis.

“We would welcome their making a truly superior proposal,” he said.

After four hours of arguments, Strine said only that he would issue his ruling sometime before the scheduled shareholder meeting.

The judge did suggest, however, that the shareholders bear a heavy burden in trying to convince him that he should “second-guess” Dollar Thrifty’s board.

“Are you telling me they’re bad guys? And if they are bad guys, tell me why, because your briefs don’t,” Strine told Grygiel.

Grygiel suggested that Dollar Thrifty’s board was duped by its financial advisers, Goldman Sachs and JPMorgan Chase, into accepting a bad deal, and that Goldman had a conflict of interest because of its previous ties to Dollar Thrifty CEO Scott Thompson, and because two former Goldman bankers serve on Hertz’s board.

But Strine wondered whether Avis is simply trying to blow up Dollar Thrifty’s deal with rival Hertz, and why Avis had not come back with an offer that better addresses Dollar Thrifty’s concerns.

“What the heck’s going on with Avis, given that they can’t reconfigure their deal?” he said.

Hertz, based in Park Ridge, N.J., offered Dollar Thrifty a deal valued at about $41 per share, which the shareholders argue does not reflect an adequate premium.

Avis, based in Parsippany, N.J., offered a deal valued at more than $47 per share, but without the $45 million breakup fee Hertz agreed to pay if it fails to complete its acquisition.

“Avis won’t offer up to pay any termination fee if it fails to get antitrust approval,” Strine noted. “… It must be that they take the antitrust risk pretty seriously, because they don’t want to pay a reverse termination fee.”

Lowenthal, the Dollar Thrifty attorney, suggested that Avis ran a higher risk of not winning regulatory approval because its Budget Rent A Car division and Dollar Thrifty have similar market shares of airport car rentals aimed at leisure travelers, while Hertz’s Advantage Rent A Car has only a tiny slice of that market.

Lowenthal added that while Avis faces more antitrust pressure than Hertz, the value of the assets it has offered to divest to win regulatory approval is $10 million less than what Hertz has offered to divest.

Grygiel, the shareholders’ attorney, countered that deal certainty doesn’t trump Dollar Thrifty’s duty under Delaware law to get the best price it can from a buyer.

But Strine noted that a higher price doesn’t mean anything if the buyer can’t close the deal, and that he didn’t think it would be right to block a shareholder vote on Hertz’s offer “so Avis can be told in crayon something they obviously know.”