Car rental company Avis is set to purchase care sharing service Zipcar for around $500 million, it was announced Wednesday.
Avis has agreed to pay $12.25 per share in cash, a 49% premium over Zipcar's closing price of $8.24 a share on December 31, 2012. Zipcar's shares were up nearly 48% in pre-market trading on the news.
The transaction is subject to approval by Zipcar shareholders and other customary closing conditions, and is expected to be completed in the spring of 2013. The Boards of Directors of both companies unanimously approved the transaction, and Zipcar shareholders representing approximately 32% of the outstanding common stock have agreed to vote their shares in support of the transaction.
Avis is getting into the car sharing business because it sees it as "highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company," Ronald L. Nelson, Avis Budget Group chairman and chief executive officer, said in a statement.
"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," Nelson said.
The Cambridge, Massachusetts-based Zipcar is a membership-based car-sharing company that provides automobile rentals to its members, billable on an hourly or daily basis.
Founded in 2000, the company has over 760,000 members, known as Zipsters, and has a presence in 20 major cities across the United States, Canada and Europe, as well as 300 college and universities.
The company raised over $60 million in funding, including a $21 million round led by Meritech Capital Partners, with participation from Pinnacle Ventures, in December 2010, before it went public in April 2011.
"As the leading global provider of car sharing services, with a brand that is synonymous with the category, we remain committed to the values and vision that have driven us forward for many years, grounded by our passion for delivering a superior experience to every member for every trip, every day,"Scott Griffith, chairman and chief executive officer of Zipcar, said in a statement. "By combining Zipcar's expertise in on-demand mobility with Avis Budget Group's expertise in global fleet operations and vast global network, we will be able to accelerate the revolution we began in personal mobility."
As a result of the purchase of Zipcar, Avis expects to save $50 to $70 million annually, by elimating Zipcar's public-company costs, as well as by increasing fleet utilization across the two companies. Avis also sees potential increased revenue by using it's fleet to help meet Zipcar's weekend demand, which is currently constrained by the availablity of its cars.
"Avis Budget's existing infrastructure, scale and experience with managing multiple brands make us uniquely positioned to accelerate the growth and profitability of Zipcar," Nelson said. "At the same time, we are committed to retaining the elements of the Zipcar brand and culture that have allowed Zipcar to achieve such rapid growth and success over the last twelve years."
Once the deal is complete, Zipcar will operate as a subsidiary of Avis Budget Group and will continue with its planned move to its new headquarters in Boston. Griffith, as well as Mark Norman, president and chief operating officer of Zipcar, are expected to continue to stay on to run the company on a day to day basis.
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