Zipcar’s path to the public market has become a bit more bumpy as its purchase of Streetcar, its largest rival in London, raises anti-competition concerns. The Office of Fair Trade (OFT) in the United Kingdom said Tuesday it couldn’t be confident that the acquisition wouldn’t stifle competition, so it’s referring the case to the Competition Commission for further review.
The decision came two months after Zipcar filed for an initial public offering in the U.S. to raise up to $75 million. The Cambridge, Mass.-based company plans to use the proceeds of its IPO to expand its fleet, develop new services, and pay about $5 million to shareholders of Streetcar, which Zipcar bought in spring this year. Zipcar stopped integrating its operation with Streetcar’s when it received an inquiry letter from OFT in June this year, the company said in its filing with the U.S. Securities and Exchange Commission. The Competition Commission has until Jan. 24, 2011 to issue its report.
Zipcar has built the largest car-sharing network in the U.S. since its inception in 2000. It’s developed an on-board device that receives reservations and allows consumers to unlock the cars they have booked online or by phone. The device, along with GPS and other tools, also let Zipcar or the fleet managers in Zipcar’s FastFleet program, keep track of the cars. The company saw 2.6 million reservations in the 12 months ending March 31 this year.
Zipcar charges an annual fee and additional rental fees, and customers can reserve cars by the hour. The company previously talked about becoming profitable this year, but its expansion plans in recent years have cost a lot of money, making profitability a goal rather than a reality so far.
Zipcar saw its annual revenue grow from $57.82 million in 2007 to $131.18 million in 2009, while its net loss shrank from $14.44 million to $4.67 million in the same period, according to its SEC filing. The company posted a net loss of $5.33 million on $33.24 million in revenue for the first three months of this year, compared with a net loss of $2.97 million on $25.76 million in revenue from the year-ago period.
Zipcar was the second largest car-sharing club in London and competed fiercely against its larger rival, Streetcar. The planned $63.4 million acquisition of Streetcar fit nicely in Zipcar’s expansion plan, but it could make it extra difficult for new comers to enter the market in the next few years, the OFT said.
“The car club model is a relatively recent phenomenon, but one that is expected to continue growing. The fact that the market is nascent means that it is particularly important to protect the competition that exists at this point,” said Amelia Fletcher, OFT senior director of mergers, in a statement. “This merger will bring together the two largest and most closely competing car clubs in London, and our investigation has indicated that, notwithstanding its much smaller size, Zipcar was a particularly strong and dynamic competitor to Streetcar. Given that we have not been able to rule out competition concerns, we are referring the merger for a fuller investigation by the Competition Commission.”
Streetcar isn’t the first acquisition for Zipcar, which bought out its largest U.S. competitor, Flexcar in Seattle, more than two years ago. Zipcar recently borrowed $70 million to expand its fleet, which has more than 7,000 vehicles in the United States, Canada and United Kingdom. The company has signed up more than 400,000 customers.
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