The dealmakers cash in, but where’s the beef?

A friend of mine sent me an article by Time magazine columnist Michael Kinsley that ran on the op-ed page of The New York Times. Consider that Daimler-Benz paid more than $30 billion for Chrysler and is now selling 80 percent for $7.5 billion. If executives were paid and bonused with five- or 10-year look-backs, three-quarters of them wouldn’t get a dime! Read on:

“In 1946, Warren E. Avis (who died last month at the age of 92) had an idea: Rental cars should be available at airports. So he founded Avis Airlines Rent-a-Car. In 1954, he sold the company to another businessman, Richard Robie. Two years later, in 1956, Robie sold Avis to an investment group led by a company called Amoskeag. In 1962, the investment banking firm Lazard Frères bought Avis. In 1965, Lazard sold Avis to the giant conglomerate ITT Corporation.

“Since 1946, Avis has been sold or reorganized 17 or 18 times, depending on how you count. Each time Avis changed hands or structure, there have been fees for bankers and fees for lawyers, bonuses for the top executives and theories about why this was exactly what the company needed.

“In 1972, ITT spun off Avis as a publicly traded company. Then, in 1977, the company was bought by another giant conglomerate, Norton Simon (no relation). In 1983, a company called Esmark (formerly Swift & Co.) bought Norton Simon. In 1984, Esmark was bought by Beatrice Foods, and in 1986, Beatrice was bought by the leveraged buyout firm Kohlberg Kravis Roberts & Company.

“Kohlberg Kravis Roberts immediately sold Avis to an investment group called Wesray. Wesray sold Avis’s fleet leasing business to a company called PHH Group. Then it spun off Avis’s foreign operations and took them public as a company called Avis Europe P.L.C. And then, in 1987, Wesray sold Avis to its employees under an employee stock ownership program. Wesray more than tripled its money in 14 months.

“Two years after the stock ownership deal, the company sold General Motors a complicated security that effectively gave it a 26 percent stake in Avis. Apart from that, Avis’s employee ownership experiment lasted nine years, until 1996, when Avis sold itself to a company called HFS. Employees got an average of $26,000 each. Eighty or 90 current and former Avis executives got an average of $1.75 million each.

“A year later, in 1997, HFS took Avis public. (The initial public offering raised just over $330 million. The banker Bear Stearns charged $15 million for its services.) In 1999, Avis bought PHH. Remember PHH? That was the company Avis sold its fleet leasing operation to in 1987. PHH was owned by Cendant, a company that had been formed in 1997 by the merger of HFS — right, the company that had spun off Avis in 1997 — and another company called CUC. HFS had retained 19 percent of the company’s stock when it took Avis public. With the stock portion of Avis’s purchase price for PHH, Cendant now owned 34 percent of Avis.

“A couple of years later, Cendant bought the roughly two-thirds of Avis that it didn’t already own and made Avis a wholly owned subsidiary.

“In 2006, Cendant split itself into four independent companies, one of which was the Avis Budget Group. (Somewhere along the line, Cendant had also acquired Budget Rent a Car.) The Avis Budget Group became the parent company of Avis Budget Car Rental.

“Modern capitalism has two parts: there’s business, and there’s finance. Business is renting you a car at the airport. Finance is something else. More and more of the news labeled “business” these days is actually about finance, and much of it is mystifying. Even if you can understand — just barely — how it works, you still wonder what the point is and why people who do it need to get paid so much. And you strongly suspect that the swirl of financial activity around Avis for the past six decades has had little or nothing to do with the business of renting cars.

“Last September, a week after the Avis Budget Group began trading on the New York Stock Exchange, The Wall Street Journal reported that the new company was ‘ripe for the picking.’ Carl Icahn, another wily financier from the 1980s, had acquired a $100 million stake in the company and would not comment about his intentions.

“The Journal warned, ‘If a buyout or acquisition deal doesn’t materialize for Avis, stock and bond investors will have to focus on the fundamentals of its car-rental business.’ Goodness! Anything but that!”

In December we sold a large manufacturing building (a printing company) that had been bought or merged 22 times in 48 years. Where is the value added? We make less and less every year. The financial services sector has been coining money ever since 1995 (four years after the last big real estate collapse). But is there value being offered/provided for the fees charged? Is it reasonable and fair? Are they creating or adding to value or are they garnering fees off the top of the froth?

I do not know the answer, but tales like that of Avis make you wonder, “Where’s the beef?”

Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE), a Fellow of the Royal Institution of Chartered Surveyors (FRICS) and a member of the board of The Initiative for a 20/20 Vision for Concord. He can be reached at

Categories: News