Car Rental Deal Stuck in Neutral
On Aug. 27 of this year, Hertz Global Holdings (HTZ) announced that would acquire smaller auto-rental rival Dollar Thrifty Automotive Group (DTG) for $87.50 a share. News of the acquisition sent shares of Dollar Thrifty up from the pre-deal share price of $75 to $87, as the this was an acquisition that Hertz had wanted for a while and the market was confident the deal with go through. Hertz expected that it would clear all regulatory hurdles by Oct. 18. Yet around that time, the Federal Trade Commission (FTC) Bureau of Competition informed Hertz that the agency needed more time to review the deal. The market took this as a sign that the acquisition was no longer a given and DTG shares dropped 7% to $80.
Dollar Thrifty shares have fallen yet further and now trade for $77, which is nearly the same price they traded at before the deal was even announced. With a very attractive spread of nearly 15% to the acquisition price, this is a merger arbitrage trade that is well worth considering. My opinion (based on the initial information I have read but more importantly information on the history of this deal) is that it will go through. What matters with respect to a merger arbitrage trade is not when the actual acquisition is consummated but when (or if) the FTC grants its approval. FTC approval will most likely send shares right back over $87 a share. At the present time, Hertz extended the deadline for the FTC to rule to Nov. 16 from Oct. 31....428 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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