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HFS Plans Public Offering of Avis’ Rental Operations Rather Than Spin-Off

August 23, 1996

NEW YORK (AP) _ HFS Inc. plans to sell a majority of Avis’ car rental business to the public, rather then spin it off to HFS shareholders, after the franchiser’s $800 million purchase of Avis Inc. is complete.

The change, announced Friday, does not significantly alter HFS’ strategy for Avis. HFS announced the purchase on July 1 and said then it planned to divest Avis Rent A Car and retain the franchise, meaning the car renter would pay HFS a fee to use the Avis name.

HFS also announced Friday it possibly would pursue the acquisition of another car rental company. The company had mentioned such a possibility before. It declined to name candidates.

``We expect meaningful opportunities to create shareholder value through the combination of HFS and Avis as well as the benefits associated with a potential follow-on acquisition in the rental car industry,″ HFS chairman and chief executive Henry R. Silverman said in a statement.

HFS is the world’s largest franchiser of hotels and residential real estate brokerage offices, owning Days Inn, Howard Johnson, Century 21, Super 8, Travelodge and other brands.

In its statement, HFS said it plans an initial public offering, or IPO, of Avis Rent A Car, together with the operations of the possible acquisition, sometime next year. Avis would be HFS’s biggest car rental franchise.

The difference between a spin-off of Avis Rent A Car and the now-planned IPO is the IPO would put a majority of Avis Rent A Car stock in public hands, with the remainder being held by HFS. ``By doing an IPO, we will have to put less of HFS’ money into this new company,″ said Stephen P. Holmes, executive vice president and chief financial officer of HFS.

A spin-off would have put a smaller stake of the rental company in public hands and left HFS shareholders with both their HFS shares and shares of Avis Rent A Car. With the IPO, they receive no additional shares.

An additional advantage to an IPO is an accounting benefit for HFS. A company that does a spin-off, Holmes noted, is restricted from using the ``pooling of interests″ accounting method for two years. A company using pooling sidesteps certain charges against earnings. HFS is a frequent acquirer, so a restriction of pooling could be significant.

HFS said it has signed a definitive agreement with Avis and its employee stock ownership trust to move ahead with the purchase, and said it expects to execute a contract next week with General Motors Corp., which owns 29 percent of Avis, to purchase its shares.

The acquisition of Avis is expected to close in October, HFS said. Employee participants in Avis’ employee stock ownership plan, however, first need to vote in its favor. Their vote is set for late September and Holmes said HFS is confident it will win approval.

Avis spokesman Russell L. James said employees are ``solidly behind this thing.″ Some dissatisfaction was expressed on behalf of Avis employees when the HFS purchase was first announced.

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