The Dollar Thrifty opera, Act II…

June 7, 2011

Last August, we wrote this post about Dollar Thrifty Automotive Group, Inc.’s (DTG) dramatic merger negotiations with rivals Avis Budget Group, Inc. (CAR) and Hertz Global Holdings, Inc. (HTZ). At the time, Dollar Thrifty had just announced its intentions to choose a suitor (Hertz) in a proposed $1.3 billion deal that didn’t actually conclude with a “happily ever after” ending.

As any patron of the arts knows, though, a good drama is filled with unexpected twists and turns; and that has certainly been the case here, as recounted in the 28-page Background of the Deal section in the SC 14D9 that Dollar Thrifty filed yesterday.

In the past nine months, rivals Avis and Hertz have continued to trade insults while simultaneously increasing their own offers to buy Dollar Thrifty. At one point, suitor Avis refused to leave the stage with its unrequited desire, asserting, “Hertz resorts to antitrust as a scare tactic and a smoke screen — a last-ditch effort to deflect attention from its clearly inferior offer — but Hertz is wrong on the process and wrong on the facts.” For its part, Dollar Thrifty is now playing “hard to get,” having adopted a Shareholders Rights Act last month and (as this article from yesterday’s Wall Street Journal explains) encouraging its shareholders not to tender their shares to Hertz just yet. Hertz’s most recent offer is valued at $70.68 a share (based on last Friday’s closing price) – about $20 per share higher than the offer it made last fall. The Journal puts the value of Avis’s offer at $56.74 per share.

Dollar Thrifty’s shareholders may be watching all this on the edge of their seats, since the value of their investment increases with each new counter-offer. But yesterday’s SC 14D9 also discloses that Dollar Thrifty’s officers and directors stand to get substantially more than they would have received if the company had merged with Hertz on the terms that were discussed last year. Certainly they benefit from higher offers, just like the shareholders do; but they also benefit because they got big raises last December, as we reported in this post. Thanks to those raises, the merger-related salary multiple instantly yields a bigger payoff for the top executives who are lucky enough to get them.

When we wrote last fall’s post, for example, it was estimated that Dollar Thrifty’s CEO/President, Scott Thompson, would receive more than $22.5 million from his severance, equity interests, benefits and accrued vacation, including a tax gross-up payment of nearly $2.93 million.

The SC 14D9 shows that now, assuming a deal closes July 8, Thompson could get more than $37.948 million, which includes compensation for his equity interests as well as payments for his salary, benefits, and perks, and a tax reimbursement of more than $5.29 million. The numbers for Dollar Thrifty’s other named executive officers range from more than $7.95 million to more than $14.362 million.

It will be interesting to see how the drama ends, but it’s clear that, as long as the suitors are willing to sweeten their proposals, those with the most at stake have an incentive to hold out for more. We’ll take another look at how it turns out after the players have taken their final bows and the curtain on this saga has closed.

Image source: fancycwabs via flickr

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