Brazil Watchdog OKs Deal Creating $9 Billion Car-Rental Giant

(Bloomberg) -- Localiza Rent a Car SA’s purchase of rival Unidas SA was approved by the Brazilian antitrust regulator, paving the way for the creation of a car rental company that ranks among the world’s biggest.

The board of regulatory agency Cade approved the transaction with restrictions that include brand divestment, seeking to mitigate potential competition problems ahead, Cade’s President Alexandre Cordeiro said during a meeting on Wednesday. 

He estimated the new company’s market share should be below 50% once the remedies, which the case’s rapporteur has yet to publicly disclose, are implemented. Bradesco BBI analyst Victor Mizusaki expects Cade to ask Unidas to sell about 50,000 vehicles in the rent-a-car segment. 

Shares of Localiza and Unidas, which is formally known as Cia de Locacao das Americas, gained at least 4% in Sao Paulo, and are among the best-performing names on the Ibovespa index as of 4:45 p.m. local time. 

The new company is expected to post a net income of around 3.1 billion reais ($542 million) next year and have a market cap of about 49.7 billion reais, BTG Pactual analysts led by Lucas Marquiori wrote in a report prior to the ruling. That would place it below Avis Budget Group -- which is worth $12.7 billion -- but above Germany’s Sixt SE ($6.5 billion.)

Localiza first unveiled plans for the takeover more than a year ago, and received the green light from Cade’s superintendency in September. Localiza’s shareholders will own about 77% of the new firm, while Unidas holders will have the remaining 23%. Cade had until January 6 to rule on the case. 

The deal’s conclusion is still subject to Cade’s approval of a buyer for the assets to be divested, Localiza said in an emailed note. 

Localiza is down 14% this year, compared to a 10% drop for the benchmark during the same period. Given the stock’s discount to its historical average, Bank of America earlier this week recommended clients buy Localiza regardless of the antitrust ruling.

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