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As of December 2010, the Avis Budget Group (NASDAQ:CAR), comprising of Avis and Budget, harbored over 345,000 rental vehicles and recorded around 22 million vehicle rental transactions worldwide. Ah! Avis Budget definitely is an established player in the vehicle rental industry.

Then why did it surrender in the bidding race for Dollar Thrifty (NYSE:DTG), in the 17-month bidding war with Hertz Global Holdings, Inc. (NYSE:HTZ)? Well, the very first thing is that Dollar Thrift is even larger than Avis Budget Group, as per the market cap goes. But that's not the main reason why Avis Budget Group didn't go for Dollar Thrifty.

According to Avis Budget Group, following are the reasons.

  1. Huge level of debt. It seems the total debt is already over $10.10 billion, and the current liabilities is already over $900 million. In fact, the debt due to Avis Budget Rental Car Funding (AESOP) LLC is almost $4 billion. Recently, its Avis Budget Rental Car Funding (AESOP) LLC subsidiary has completed an offering of $650 million of asset-backed bonds, but still more funds required to cover the huge debt.

  2. Issuance of additional shares might dilution of current stockholders, further lowering the stock price, which is bad for the company.

  3. Credit rating may suffer because of the acquisition of Dollar Thrifty.

  4. Transaction costs and acquisition charges may be too much for Avis Budget Group to afford. Moreover, the approval process may turn out to be too long, compared to what expected or is profitable for the company.

Now, these seem to be viable points for the company. Now, it must be understood that unstable market, volatile and seasonal demand, international suppliers, all these definitely pose future uncertainty for the company, and engaging in risky buys may not be a viable option at the moment. So, I would say this is a nice move.

But if you are already investing in vehicle rental companies, do consider giving Amerco (NASDAQ:UHAL) a look. I will do a report on that. Stay tuned.

Source: Avis Budget Drops Dollar Thrifty, Hertz Tracks Cleared