Avis Budget Group has announced plans to buy Zipcar for $491.2 million in order to expand its traditional car rentals to also include car sharing.
Avis has agreed to purchase Zipcar for $12.25 in cash at a 49 percent premium over the company’s closing price at the end of last year. However, it’s a far cry from its opening price of $18 per share when the stock went public in April of 2011.
Car sharing has grown in popularity, though not much in profitability. Typically rented by the hour, car sharing provides more affordable access to transportation for people who in cities who may not need to rely on having a vehicle all the time, but may need one from time to time for special purposes. Zipcar is the original car sharing service and has grown to 760,000 members since it was founded in 2000. It has inspired competition, including RelayRides, which allows private individuals to rent out their vehicles. The success of the sharing platform has evolved to other sharing services such as Airbnb, which rents out living quarters, and ParkingPanda, which rents out parking spaces.
The news was met with everything from disbelief to high fives. The Washington Post predicted that the “Avis will ruin Zipcar,” mainly by ruining Zipcar’s brand identity by becoming a corporate conglomerate. “The real issue in these deals is culture. Zipcar has a way of doing things that is particularly appealing to the young…” the Post’s editorial stated. “Everything about the company — from its marketing to its customer interface to its rules — supports that brand identity. The only way for Avis to realize its over-promised cost savings will be to force Zipcar to consolidate the two operations and become more like Avis in everything it does.”
Reuters, on the other hand, declared Zipcar a “smart buy,” stating “from Avis’s point of view, it’s buying the clear leader in what is probably the future of car renting.”
Being owned by a major car rental company will also give Zipcar much needed fleet access as it struggles to meet the demand for its services. In many urban areas, renting a car for a weekend on Zipcar has become its own form of lottery, making spontaneous trips difficult. Being owned by Avis means the company will have a much easier time finding cars to fill reservations.
While the Zipsters of the world (as their consumers like to be called) might balk at their favored startup selling out, so also might the shareholders. Powers Taylor, the securities litigation firm, announced plans to investigate and possibly block the deal, arguing that the $12.25 price is well below the company’s 52 week high of $16.25 per share. The firm’s press release notes that at least one Yahoo analyst has pegged the true inherent value of the company at $13 per share. “Due to the proposed sale price, the size of the deal and other factors, we believe this transaction may undervalue Zipcar’s stock. Our proposed lawsuit will seek to obtain the highest share price for all shareholders,” stated Willie Briscoe, the shareholder rights attorney taking up the case who is also a former US SEC attorney.
But it does signal “that the sharing economy has come of age,” Zipcar’s largest investor Steve Case told Bloomberg. The AOL co-founder’s Revolution fund stands to make about $96 million in the deal, according to Bloomberg.