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Avis to Close Zipcar Deal This Week

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Global vehicle rental giant, Avis Budget Group Inc. (CAR - Free Report) got the United Kingdom Office of Fair Trading’s clearance for acquiring the world’s leading car sharing network company, Zipcar Inc. , on Mar 8, 2013. Both the companies expect the acquisition to complete in this week.

The deal has also received a clean chit from other regulatory bodies in United States and United Kingdom. On Feb 11 this year, Avis Budget has successfully completed the waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Avis had agreed to buy Zipcar in Jan 2013 for a total value of $500 million. This strategic move will facilitate the company in expanding its offerings from car rental to car sharing and compete with rivals such as United Rentals Inc. (URI - Free Report) and Hertz Global Holdings Inc. (HTZ - Free Report) .

To finance this deal, Avis completed a debt financing worth of approximately $525 million on Mar 8. The new debt , which consists of 2 components – senior notes and term loans -- carries a weighted-average interest rate of 5.1%.

In the first part, Avis‘ subsidiary Avis Budget Finance plc has closed the offering of its first ever Euro denominated senior notes worth EURO 250 million (nearly $325 million), carrying an annual interest rate of 6% and maturing at par in 2021.

In the second part, the company got a term-loan borrowing of $200 million carrying an annual interest rate of 3.75% and due in 2019.

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

In the United States alone, car sharing is currently a lucrative business worth nearly $400 million and it is growing rapidly in other parts of the world. With over 760,000 members, Zipcar has presence in 20 major cities of the U.S., Canada and Europe.

We believe that by capitalizing on Zipcar’s strong network along with its leading-edge technology, Avis will definitely be 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.

Avis currently carries a Zacks Rank #4 (Sell).

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