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updated 6/14/2011 10:00:22 AM ET 2011-06-14T14:00:22

Car rental company Avis Budget Group Inc. said Tuesday it will take over Avis Europe in a $1 billion deal, raising the possibility that Avis Budget may back away from a bidding war for U.S. rival Dollar Thrifty.

The move reunites Avis Europe, which separated from Avis in the 1980s, combines the Avis and Budget brands worldwide, and creates what the company said is the largest publicly traded rental car business in the world.

Avis Budget has been in a tug-of-war for more than a year with rival Hertz to buy Dollar Thrifty Automotive Group Inc., and the European acquisition is an indication that Avis Budget is moving away from the pursuit.

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In a statement announcing the deal, Avis Budget said it has made progress with U.S. anti-trust regulators in talks about the Dollar Thrifty acquisition, but the European deal would be the company's priority.

"While Avis Budget will continue to monitor the Dollar Thrifty situation, the company's focus squarely will be on completing and integrating the significant acquisition of Avis Europe," the statement said.

In a conference call Tuesday morning, Avis Budget CEO and Chairman Ron Nelson would not answer questions about the status of the Dollar Thrifty acquisition. "I think that we've said all we're going to say about Dollar Thrifty," he said.

Shares of Dollar Thrifty fell $7.13, or 8.9 percent, to $72.74 in pre-market trading Tuesday. Avis Budget shares rose 21 cents to $16.17 ahead of the market opening.

On Monday, Dollar Thrifty's board recommended that its stockholders not tender their shares in Hertz's proposed $2.25 billion buyout.

Dollar Thrifty agreed last month to cooperate with Hertz Global Holdings Inc. to get antitrust clearance for the bid, which includes $57.60 in cash and 0.8546 shares of Hertz common stock. But on Monday Dollar Thrifty said it was advising stockholders hold off on any action.

Hertz has been competing with Avis Budget, whose overture includes $45.79 per share in cash and 0.6543 shares of Avis, has been stuck waiting for antitrust approval. That proposal is worth about $1.77 billion at Friday's prices for Avis shares.

Dollar Thrifty had asked Avis in October not to make a formal offer so that the two companies could work together with antitrust authorities. Avis agreed to wait.

Both Hertz and Avis Budget are after Dollar Thrifty because its clientele is largely leisure travelers. Park Ridge, N.J.-based Hertz and Avis cater mostly to business travelers, so the acquisition would give them broader appeal.

The chase for Dollar Thrifty is a sign of the times in the car rental industry, as the sector has been consolidating for years. In 2002, Avis' parent company bought Budget, while Enterprise's parent company acquired Alamo and National in 2007.

In the European acquisition, Parsippany, N.J.-based Avis Budget, will pay $5.16 per share, or 315 pence, for Avis Europe, based in Bracknell, England.

The bid is a 60 percent premium over the closing share price on Monday. As a result, Avis Europe shares soared 58 percent to 310.3 pence on the London Stock Exchange.

Avis Budget and Avis Europe said in the statement that they will have combined revenue of about $7 billion and operations in more than 150 countries. The companies expect to cut costs more than $30 million a year by combining operations.

Avis Europe operates in 112 countries including a joint venture, formed in 2002, with Shanghai Automotive Industry Sales Corp. Since 2003, it has held rights to operate the Budget brand in Africa, the Middle East and Europe.

Avis Europe was legally separated from Avis in 1986 and was floated on the London exchange, while remaining under the Avis brand. It was then taken private again in 1989, acquired by GE Capital Services in 1992 and floated again on the London Exchange in 1997.

Nelson said the deal would give his company an increased presence in growing car rental markets in India and China.

"This transaction represents an outstanding opportunity for Avis Budget, and the acquisition of a business that we have long sought to own," said Nelson.

The deal is subject to approval by Avis Europe shareholders.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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