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Avis Budget Group Inc. (CAR) announced that it is acquiring Avis Europe for 635 million pounds or $1.0 billion. After 25 years, the company again intends to unite the two businesses.

The acquisition, which is expected to close in October 2011 and is subject to shareholder approval, court approval and regulatory clearances, is expected to be financed by cash, equity issuance of up to $250 million of Avis Budget common stock, and debt financing.

The merger of two companies will lead to operating synergies of more than $30 million a year and will allow the companies to serve the customers more effectively. The acquisition will also give an opportunity to Avis Budget to grow in international markets, including India and China.

After functioning for three years as a private company, Avis Europe was jointly acquired in 1989 by General Motors, a Belgian group D’Ieteren and Avis Budget.  In 1997, Avis Europe got its shares listed on the London Stock Exchange with Avis and General Motors selling their stake while D’Ieteren holding a 60% share in the company.

The united business of Avis Budget and Avis Europe is expected to generate annual revenues of about $7 billion with operations in over 150 countries. 

Avis Budget Group is the leading general-use vehicle rental company in North America, Australia and New Zealand. Moreover, a formidable network of more than 7,800 rental locations and 350,000 vehicles enables the company to strengthen its well-established position in a highly competitive vehicle rental industry.

Continued focus on productivity and cost containment initiatives, better travel trends and lower fleet costs drove the company to post better-than-expected financial results for the first quarter of fiscal 2011.

However, the company faces intense competition from other established players, such as Hertz Global Holdings Inc. (HTZ), Dollar Thrifty Automotive Group Inc. (DTG) and Ryder System Inc. (R). Consequently, the company may face challenges to maintain its high level of operating performance.

Avis Budget shares maintain a Zacks #2 Rank, which translates into a short-term Buy recommendation. Besides, the company retains a long-term Neutral recommendation.

 
AVIS BUDGET GRP (CAR): Free Stock Analysis Report
 
DOLLAR THRIFTY (DTG): Free Stock Analysis Report
 
HERTZ GLBL HLDG (HTZ): Free Stock Analysis Report
 
RYDER SYS (R): Free Stock Analysis Report
 
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