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August 25, 2010 3:04 PM

Dollar Thrifty Shareholders Ask Delaware Judge to Stop Vote on Hertz Deal

Posted by Julie Triedman

The tortuous battle between Hertz Global Holdings and Avis Budget Group for Dollar Thrifty, the nation's fourth-largest auto rental chain, reached a climax Wednesday, Dealbook reported.

With a Dollar Thrifty shareholder vote on Hertz's takeover bid scheduled for Sept. 16, counsel for a group of shareholders opposed to the deal is seeking to stop the vote and reopen the bidding process. A hearing on the shareholders' injunction motion was held Wednesday in Delaware Chancery Court; an early report from our colleagues at the Litigation Daily [subscription required] suggests Vice-Chancellor Leo Strine, Jr., appeared deeply skeptical of the group's motivations and arguments. His decision is expected before the planned shareholder vote.

After nearly three years of overtures, Hertz Global Holdings launched its $1.2 billion offer for Dollar on April 25; the offer represented a slim 5 percent premium over Dollar Thrifty's stock price at the time. The proposed deal also included an unusually high level of security for the acquiror, including a 5 percent breakup fee--the norm is about 3 percent--and the right to match a rival's bid.

Three days later, at least five Dollar Thrifty investor class actions were filed in federal court in Tulsa and five in Chancery Court in Wilmington. Both sought to block the proposed Hertz merger, according to Dollar Thrifty filings.

Avis Budget Group, which had also been making repeated overtures to Dollar Thrifty for three years, soon after announced that it was pursuing it own talks with the company in advance of a higher offer; in late July, as we reported here, Avis offered $1.3 billion for the company. But, allegedly after Dollar Thrifty's CEO cancelled a scheduled meeting with Avis, the board rejected the Avis deal on Aug. 3, setting the stage for a shareholder vote on the board-approved Hertz deal.

The shareholder class actions were consolidated in May before Vice-Chancellor Strine in Wilmington. In their complaint, the shareholders allege that the Hertz deal is not in Dollar Thrifty investors' best interests, claiming that Dollar Thrifty's investment bankers at JPMorgan Chase and Goldman Sachs & Co. had crafted a sweetheart deal for Hertz and put up insurmountable barriers to rival bids; they claim that the bankers "even told Hertz they were not seeking a typical takeover premium," the complaint states.

The shareholders claim that Goldman's lead banker, in particular, was conflicted by previous relationships on both sides of the deal, both with Hertz executives and with Dollar Thrifty's CEO, Scott Thompson. "In Scott's words," the plaintiffs assert, "he would not have any job if it were not for [Goldman Sachs]."

Dollar's board "approved a no-premium deal...without even talking to the most likely alternative bidder, Avis," wrote the shareholders' counsel in a redacted motion for an injunction filed Friday in Delaware Chancery Court. The board "then lied to shareholders about why [Dollar] CEO Scott Thompson avoided Avis's calls and canceled a scheduled meeting, and locked up the proposed transaction with deal protections way out of proportion to the economic merit of the deal." The shareholders' lawyers include Bernstein Litowitz's Mark Lebovitch; Grant & Eisenhofer's Jay Eisenhofer; Barroway Topaz Kessler Meltzer & Check's Marc Topaz; and Robbins Geller Rudman & Dowd's Darren Robbins; Stephen Grygiel of Grant & Eisenhofer argued the motion on Wednesday.

Meanwhile, there are other sweeteners that might encourage Dollar Thrifty's executives to push for a quick marriage with Hertz. Dollar Thrifty's executives and board stand to gain millions of dollars if the Hertz merger closes by Dec. 31. [Hat Tip:] The company's merger proxy, filed Aug. 17 by its corporate lawyers at Cleary Gottlieb Steen & Hamilton, indicates that Thompson will receive more than $22.5 million in severance, benefits, and accrued vacation, as well as a gross-up salary payment of $2,928,678. Other nonexecutive officers stand to receive merger-related payments ranging from $5.3 million to $9.3 million. Directors also will collect handsome paydays upon a successful close: Their options will immediately vest. And, last but not least, all directors will be "entitled to lifetime use of rental cars."

Cleary's Mitchell Lowenthal is representing Dollar Thrifty in the current litigation.


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