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Zipcar Inc. Accused Of Discounting Shares After Acquisition By Avis Is Announced

|Includes: Avis Budget Group, Inc. (CAR), CAR

Zipcar Inc. (NASDAQ: ZIP) is an emerging growth company with a market cap of $490 million with shares closing at $12.26 on March 8. You don't always get to see much by the way of USPs (Unique Selling Points) in the transportation industry. However, Zipcar has been the epitome of uniqueness since its formation in 2000 when it pioneered the concept of car sharing as an alternative to car rental and car ownership in the United States.

The uniqueness of Zipcar's service saw the company growing to become the leading car sharing network globally, with over 770,000 members and a fleet of almost 10,000 vehicles. Zipcar has a long list of partnerships that has translated into growth and profitability for the company. An example of Zipcar's partnership is the launch of an integrated car sharing program with Cook County, Illinois to increase the number of vehicles available to the employees while reducing the amount of money that the council spends on transportation. Another partnership is with the Pacific University for the provision of vehicles for faculty, students and community use. However, when Zipcar announced its agreement to an acquisition by Avis Budget Group Inc. (NASDAQ: CAR) a few weeks back, the news was met with mixed reactions. To some people, it appears that Zipcar has run the course of its existence, and that change (which appears to be bad) is coming way. To others, it looks to be a welcome development as it promises to provide Zipcar with a stronger backbone in finances with Avis' $2.54 billion market cap for profitable growth. All appeared to be going well with the acquisition until Zipcar found itself in a class-action lawsuit that alleged that the management traded votes for a chance to keep their jobs in the new company. The allegations stem from the observation that the $12.25 per-share purchase price, which stands at a 49 percent premium value for Zipcar is at a sharp 32 percent discount to Zipcar's IPO price a year earlier.

Thankfully, Zipcar's management has been able to diffuse the tension and have agreed to a settlement even though no wrongdoing has been admitted. More so, Zipcar promises to make more information about the acquisition available to investors as a gesture of transparency and accountability.

Now, you may see the acquisition as good or bad for Zipcar based on the perspective from which you are making your argument. However, there are two facts that will benefit Zipcar's investors in the next couple of weeks. The first is the continual leadership of Zipcar by the current management team as per the terms of the acquisition. The second is that the acquisition would place Avis ahead of the competition and increase the market share of the company after the merger. Thus, Zipcar's investors can still be assured of profitable growth after the merger while Zipcar's customers, or Zipzters as they are called, can expect an increase in the hourly rental range of $7-$9 to somewhere around $12 per hour after the merger.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.