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 that Hertz sell locations, re-creating a fourth competitor after Dollar Thrifty was absorbed and moderating the prices people pay to rent cars at airports.
The agency is now concerned that Macquarie isn't following through on commitments it made to expand and strengthen Advantage, according to two people familiar with the matter who asked not to be named because the probe is confidential.
FTC officials, who haven't 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 people 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," said a spokesman for Hertz, Richard Broome.
The FTC's compliance office is believed to be deciding whether the Advantage transaction needs to be scrapped or restructured to ensure the new company can compete with its larger rivals. The larger Hertz-Dollar Thrifty transaction probably would not be challenged by the agency, sources 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 that rental car prices were rising is fuelling the FTC's concerns, they said.
The FTC could go back to Hertz and ask it to divest more locations to give some more scale to the Advantage brand, said Fred Lowrance, senior research analyst with Avondale Partners in Tennessee. Still, an investigation of Macquarie shouldn't worry Hertz investors, he said.
"If you run all the reasonably plausible scenarios, there is no material impact to Hertz' earnings," said Mr Lowrance. "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 hasn't issued a final order. Under normal FTC timelines, the consent decree would have received final approval in December, after allowing 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 attorney 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," he said.
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 car counters in addition to the Advantage business to protect consumers, citing the $11 billion spent to rent 50 million vehicles at US airports each year.
Together, Hertz, Dollar Thrifty, Enterprise Rent-A-Car and Avis Budget control about 98 per cent of total airport car rentals in the US, the FTC said.
Frequently Asked Questions about this Article…
US 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 probe focuses on if Macquarie is meeting commitments to grow Advantage and maintain competition in the US rental car market.
Macquarie acquired Advantage in a joint venture with Franchise Services of North America after Hertz bought Dollar Thrifty Automotive Group. This sale was part of a US Federal Trade Commission (FTC) agreement designed to keep four major rental car competitors in the market and prevent pricing power from shrinking to just three companies.
The FTC is concerned that if competition shrinks in the rental car market—especially at key airport locations—prices could rise for consumers. The agency’s push to maintain a fourth competitor like Advantage aims to keep rental car prices fair and competitive for everyday renters.
The FTC is worried that Macquarie isn’t following through on promises to expand and strengthen the Advantage brand. They were especially troubled when Macquarie ousted Sanford Miller, the experienced executive expected to lead Advantage, just before the acquisition was finalized.
Yes, the FTC’s compliance office might require the Advantage deal to be scrapped or restructured to ensure it remains a viable competitor. Options include bringing in another buyer or making Hertz divest more rental car locations to boost Advantage’s presence.
Experts believe Hertz investors probably don’t need to worry. While the FTC is investigating Macquarie’s actions with Advantage, the larger Hertz-Dollar Thrifty merger is unlikely to be affected. Any required changes likely won’t impact Hertz’s earnings materially.
Typically, the FTC finalizes consent decrees within about 30 days after public comments. However, in this case, significant concerns about Macquarie’s management of Advantage have led the agency to hold off, signaling the probe is serious and ongoing.
This case shows how regulatory bodies monitor deals closely to protect competition and consumers. For investors, it’s a reminder that even after deals are announced, regulators can intervene to make sure markets stay competitive and that companies adhere to promises made during mergers or acquisitions.
Call 1300 880 160
Start a chat
Schedule a call
