Macquarie faces US antitrust probe
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.
Frequently Asked Questions about this Article…
U.S. antitrust regulators are investigating whether Macquarie Group’s private‑equity arm violated a consent decree tied to its purchase of the Advantage rental‑car brand from Hertz. The transaction involved Macquarie in a joint venture with Franchise Services of North America and stems from Hertz’s larger acquisition of Dollar Thrifty Automotive Group.
The FTC was concerned the Hertz‑Dollar Thrifty deal would shrink the major airport rental‑car chains from four to three, reducing competition. To protect consumers and help moderate airport rental prices, the agency demanded Hertz divest locations to create a viable fourth competitor.
According to sources, FTC staff are worried Macquarie hasn’t followed through on commitments to expand and strengthen the Advantage brand. Officials were also troubled by Macquarie’s December ouster of industry veteran Sanford Miller, who had been slated to run Advantage under the agreement.
No. Almost five months after the FTC announced the consent decree, the agency had not issued a final order. Under normal FTC timelines the decree would have received final approval earlier, so the delay suggests the agency still has concerns to resolve.
Yes. FTC compliance staff are deciding whether the Advantage transaction must be scrapped or restructured to ensure the new company can compete. Possible outcomes mentioned include bringing in another buyer or ordering Hertz to divest additional locations.
Market analysts quoted in the article say an investigation of Macquarie shouldn’t materially hurt Hertz earnings. Reasonable scenarios might require Hertz to help find another buyer for Advantage or add more divestitures, but those changes are unlikely to have a material impact on the Dollar Thrifty merger itself.
The FTC ordered Hertz to divest 29 Dollar Thrifty rental counters and to divest the Advantage business as part of the consent decree. The agency cited the large U.S. airport rental market—about $11 billion spent to rent 50 million vehicles a year—and noted that Hertz, Dollar Thrifty, Enterprise and Avis Budget together control roughly 98% of U.S. airport rentals.
Sources said the FTC is concerned by evidence that investments in the new Advantage company were scaled back and that rental car prices were rising. Those signs have prompted staff to consider whether the deal needs to be restructured or reversed to preserve competition.
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