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PARSIPPANY, N.J. — In an effort to beat out Hertz for the acquisition of Dollar Thrifty Automotive Group, Avis Budget Group submitted a bid to the company this week, in addition to passing along a letter to its chief executive officer and chairman.

In his letter to Thomas Capo, Dollar Thrifty chairman, and Scott Thompson, president and CEO, Ronald Nelson, Avis Budget Group chairman and CEO, said, "We appreciate having had the opportunity to conduct our due diligence review of Dollar Thrifty. We continue to believe that a combination with Avis Budget presents a compelling opportunity for our respective stakeholders and the prospect for your shareholders to obtain the highest value for their investment.

"While we continue to believe that the onerous lock-up provisions in your existing merger agreement should be removed, we are prepared to put forward an offer today for Dollar Thrifty that clearly constitutes a superior proposal under that merger agreement," he added.

Avis Budget Group is willing to offer $46.50 per share of Dollar Thrifty common stock, consisting of $39.25 in cash, which includes the proceeds of a pre-closing special dividend to be paid by Dollar Thrifty consistent with the Hertz proposal, and 0.6543 shares of Avis Budget stock, which is currently valued at $7.25.

"The cash portion of our offer will be funded through a combination of available cash and fully committed financing," Nelson explained in his letter. "We have received consents from the requisite percentage of lenders in our principal corporate credit facility to amend the terms of that facility to permit the competition of the proposed transaction, including its financing.

"The stock portion of our offer does not require approval of the Avis Budget shareholders and will afford Dollar Thrifty shareholders the opportunity to participate in the combination-related synergies and benefit from the continued positive trends in our industry," he continued. "Our offer is not subject to any financing or due diligence contingencies and has the unanimous support of the Avis Budget Board of Directors."

Ultimately, Nelson indicated, "We are prepared to enter into a merger agreement that contains substantially the same terms as the Hertz merger agreement, but which includes removing the matching rights, eliminating the break-up fees, and increasing the commitment to secure antitrust approvals. … In short, we believe that the higher purchase price we are offering, combined with the terms of our proposed merger agreement, makes our offer a superior one from the perspective of Dollar Thrifty and its shareholders."

Avis Budget Group provided a draft merger agreement to Dollar Thrifty's general counsel earlier this week and indicated the Avis management is ready to sign.

"Given our willingness to enter into a merger agreement with these terms, Hertz should be required to agree to accept these provisions as a condition to Dollar Thrifty permitting Hertz to continue to make offers for the company," Nelson claimed. "The Dollar Thrifty board has the right and obligation to require acceptance by Hertz of these provisions in connection with any further consideration of offers from Hertz."

The Offer from Hertz

Back in late April when Hertz said it signed a definitive agreement to acquire Dollar Thrifty, the company offered to acquire Dollar Thrifty for a purchase price of $41.00 per share, in a mix of cash and Hertz common stock.

Under the terms of the definitive agreement, the $41.00 per share purchase price is comprised of 80 percent cash consideration and 20 percent stock consideration. The cash portion will be paid in two components; (1) a $200 million special cash dividend representing approximately $6.88 per share, to be paid by Dollar Thrifty immediately prior to the transaction closing, and (2) $25.92 per share to be paid by Hertz at the closing.

The stock is at a fixed exchange ratio of 0.6366 per share, based upon a Hertz common stock closing price of $12.88 per share on April 23, 2010. The $41.00 per share purchase price represents approximately a 19-percent premium to the 30-day average closing price of Dollar Thrifty's common stock, according to Hertz.

At the closing, Hertz will issue an aggregate of approximately 18 million shares of its common stock (excluding shares issuable upon the exercise of options that are being converted to Hertz options) and pay an aggregate of approximately $750 million in cash (excluding the special $200 million Dollar Thrifty dividend). Hertz intends to fund the cash portion of the purchase price with existing liquidity from the combined company. Hertz will also assume or refinance Dollar Thrifty's existing fleet debt, outstanding at closing. Upon the close of the transaction, Dollar Thrifty stockholders will own approximately 5.5 percent of the combined company on a diluted basis.

The last move by Hertz came when the company filed a registration statement with the Securities and Exchange Commission.

At the time, Mark Frissora, Hertz chairman and CEO, said, "The filing of the S-4 registration statement represents the next step in achieving the agreed upon merger of Hertz and Dollar Thrifty, which we look forward to completing in the near future. Dollar Thrifty's well-established presence in the value leisure segment of the U.S. airport car rental market, as well as other key international markets, complements Hertz's global presence in the business and premium leisure car rental segments."