Can Avis and Zipcar Become Number 1?

In a move that could help Avis (NYSE:CAR) wrestle back some of the market it just lost to Hertz (NYSE:HTZ), the car rental company is offering to purchase the car-share revolutionizing Zipcar (NASDAQ:ZIP) for $12.25 a share. On the news, Zipcar’s shares jumped nearly 50 percent from their previous close to $12.29.

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As the economy has weakened and gas prices have never quite returned to what they were years and years ago, the demand for car-sharing programs by consumers sparked growth in the market, and car-rental giants Hertz and Enterprise were quick to jump in. This may have contributed to Avis’s falling down to third in the car rental industry. Zipcar, in turn, holds a 75 percent majority of the car-share market, which is currently valued at about half-a-billion dollars. As the car-share market is expected to soar to $10 billion in the next several years, the pairing of Avis and Zipcar would secure a strong future for both companies.

Avis said it would purchase Zipcar with cash and debt, and the deal would likely close in the spring. If the deal goes through, Avis could take back the number 1 position in car rentals and see some $50 million to $70 million in additional yearly earnings. The acquisition will not displace the current chief of Zipcar, which should help ensure stability.

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