US antitrust regulators are investigating whether Macquarie Group's private-equity arm violated a consent decree allowing it to buy the Advantage rental car brand from Hertz Global Holdings.
Macquarie, in a joint venture with Franchise Services of North America, bought Advantage from Hertz under a November agreement with the US Federal Trade Commission that let Hertz buy Dollar Thrifty Automotive Group.
The deal bolstered Hertz's position as the second-largest US rental-car service, behind Enterprise Holdings. The FTC, concerned about the major chains shrinking to three from four, demanded Hertz sell locations, creating a new fourth competitor after Dollar Thrifty was absorbed and moderating the prices of rental cars at airports.
The agency, concerned Macquarie is not following through on commitments it made to expand and strengthen Advantage, said two sources who asked not to be named because the probe is confidential.
FTC officials, who have not given a final sign-off on the transaction, were troubled by Macquarie's December ouster of industry veteran Sanford Miller, who was to run Advantage under the agreement, the sources said.
"We have been responding to FTC questions and working with commission staff, and we believe the FTC will sign the consent decree in the near future," Hertz spokesman Richard Broome said.
Staff in the FTC's compliance office were deciding whether the Advantage transaction had to be scrapped or restructured to ensure the new company could compete with larger rivals, sources said.
The larger Hertz-Dollar Thrifty transaction would probably not be challenged by the agency, they said.
Possibilities include bringing in another buyer and ordering Hertz to divest more locations. Evidence that investments in the new company were scaled back and rental car prices were rising was fuelling the FTC's concerns, they said.
The FTC could go back to Hertz and ask them to divest more locations to give some more scale to the Advantage brand, said Fred Lowrance, senior research analyst with Avondale Partners LLC in Tennessee. Still, an investigation of Macquarie should not worry Hertz investors, he said.
"If you run all the reasonably plausible scenarios, there is no material impact to Hertz earnings," Mr Lowrance said. "Maybe Hertz would need to help them find another buyer, or add a few locations to the divestiture package, but nothing that's likely to have any impact on the Dollar Thrifty merger itself."
Almost five months after the FTC announced a consent decree with Hertz to allow the merger, the agency has not issued a final order. Under normal FTC timelines, the consent decree would have received final approval in December, after 30 days for public comments.
"The fact that the FTC hasn't approved the transaction after such a significant time frame means there are probably serious concerns being raised," said David Balto, a Washington antitrust lawyer who represents consumer groups. He is not involved in the transaction. "They can reject the consent order if they want to or force them to restructure it."
Mr Miller, who was supposed to run Advantage, was forced out five days before the acquisition closed and replaced by his co-chief executive officer at Franchise Services, Thomas McDonnell.
The FTC said it ordered Hertz to divest 29 Dollar Thrifty rental counters as well as the Advantage business to protect consumers, citing the $11 billion spent to rent 50 million vehicles at US airports a year.
Together, Hertz, Dollar Thrifty, Enterprise Rent-A-Car and Avis Budget control about 98 per cent of US airport car rentals, the FTC said in the November statement announcing the consent decree.