Money is cheap and deals are getting expensive. Hewlett-Packard (NYSE: HPQ) has overpaid for 3PAR (PAR) and ArcSight, at least based on their balance sheets and cash flow. HP could say that the deals are strategic, that is to say that they fill in some missing hole at the center of the big tech company’s plans to dominate enterprise IT–a market already dominated by Oracle (NASDAQ: ORCL), SAP (NYSE: SAP) and IBM (NYSE: IBM)
A much more mundane transaction is the one in which Hertz (NYSE: HTZ) has closed a deal to buy smaller car rental company Dollar-Thrifty (NYSE: DTG). It snatched Dollar away from Avis (NYSE: CAR) which had topped Hertz’s earlier bid. Hertz new offer is for $43.60 cash plus 0.6366 a share for each share of Dollar Thrifty. The new offer adds $10.80 a share of cash to the deal price. This is deemed by the Dollar board to be better than the Avis $40.75 cash and 0.6543 per share incentive.
No one knows what the eventual value of either deal will be for now. The prices of Hertz or Avis could change substantially over the next year.
One thing that is not in question is that Avis needs Dollar-Thrifty more than Hertz does. Avis is in second place in the car rental business. Hertz revenue is over $7 billion a year. Avis sales are only $5 billion. Dollar-Thrifty has sales of $1.5 billion last year. The winner of the bidder gets a significant market share edge.
Most big companies have no trouble added debt now unless their balance sheets are extraordinarily week. And, the money can be borrowed at remarkable low rates.
Avis won’t care what the Dollar board has accepted. It can change that board’s mind with just a modest increase in its offer. The bidding war is not over.
The stock already trades 5% above the offer in the pre-market
Douglas A. McIntyre
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