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Global vehicle rental giant Avis Budget Group, Inc. (CAR - Analyst Report) has recently agreed to buy the world’s leading car sharing network company, Zipcar, Inc. . This strategic move will facilitate the company in expanding its offerings from car rental to car sharing and compete with arch rival Hertz Global Holdings, Inc. (HTZ - Snapshot Report), which has its own car sharing service – Hertz on Demand.

The deal – expected to close by spring 2013 – has a total worth of $500 million. To finance this, Avis Budget will go for corporate borrowings and use its available cash. At the end of September 30, 2012, Avis Group had cash and marketable securities of nearly $554 million.

Avis Budget believes that the transaction will generate an annual synergy in the range of $50–$70 million. Further, we believe that the acquisition will lead to increasing revenue and reduce costs by augmenting fleet utilization.

In the United States alone, car sharing is expected to be nearly worth $400 million business and it is growing rapidly in other parts of the world. With over 760,000 members, Zipcar has presence in 20 major cities of U.S., Canada and Europe. We believe that by capitalizing Zipcar’s strong network along with its leading-edge technology, Avis Budget will definitely able to boost its top and bottom lines.

Zipcar is engaged in operating car sharing network, providing self-service vehicles to members located in reserved parking spaces throughout the neighborhoods where they live and work. The company's vehicles are available for use through its reservation system accessible by phone, internet or wireless mobile devices.

Concurrently, Avis Budget also reaffirmed its sales and earnings per share outlook for fiscal 2012. The company continues to expect revenue of approximately $7.3 billion and earnings in the range of $2.35–$2.45 per share. Adjusted EBITDA is expected to be between $825 million and $840 million, while pre-tax income is anticipated in the band of $450–$465 million.

Currently, Avis Budget holds a Zacks #3 Rank implying a short-term Hold rating.

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