Will Zipcar lose its cool after selling to Avis?

Zipcar (ZIP), which Wednesday agreed to sell itself to Avis Budget Group (CAR) for $500 million, is an easy company even for creatures of the suburbs to like because it offered a simple, convenient and cost-effective way to do good for the environment.

Unfortunately, Wall Street was immune to the charms of the car-sharing service. Before Wednesday's announcement, shares of Zipcar had plunged 73% from the close of their 2011 debut. The stock traded Wednesday at $12.22, a 48% jump from Monday. 

Zipcar's stock lagged because its financial performance was mediocre. Even though it has consistently reported double-digit revenue gains, profitability proved elusive. Zipcar earned $4.3 million, or 10 cents a share, in the latest quarter, and expected profit ranging from break-even to $3 million in the current period. There seemed to be little hope that Zipcar's financial situation would get better; the company even warned in its prospectus that "we expect to incur significant future expenses as we develop and expand our business, which will make it harder for us to achieve and maintain future profitability. "

While the sale to Avis will shore up Zipcar financially, the bigger challenge will be in convincing its fiercely loyal customers that it is the same car-sharing service they have grown to love since its founding in 2000. That's going to be difficult, given that part of Zipcar's allure is that it was a plucky upstart, doing battle against the automakers and dealers pushing every red-blooded American to have a car of their own even it might not make financial sense. That sort of image becomes a tough sell once Zipcar is part of Avis, which has a market value of about $2.2 billion.

Avis has to tread carefully with Zipcar to avoid wrecking what made the company special in the first place and worth buying: its culture. This is a lesson that some companies have learned the hard way. Snapple was once seen as plucky upstart in the beverage industry dominated by giants. The company even went by the name Unadulterated Food Corporation. Then it moved to the big leagues and disaster struck. 

Snapple's original owners first sold their company for $1.7 billion to Quaker Oats in 1994, a deal that the Los Angeles Times dubbed "one of the worst flops in corporate-merger history." Tiarc bought Snapple at the fire-sale price of $300 million in 1997. Three years later,  Snapple Beverage Group was purchased by London's Cadbury Schweppes. Snapple is now part of the Dr Pepper Snapple Group (DPS).
 
Avis is well aware of the challenges its facing. Once the acquisition closes, which is expected in the spring, Zipcar will operate as separate unit under Zipcar's existing management team of CEO Scott Griffiith and President Mark Norman. Zipcar is also going through with plans to move to its new headquarters in Boston.

Zipcar will have to convince its 760,000 customers in the U.S., Canada and the U.K. that its the same car-sharing service they have grown to rely on, even though it may not be an underdog. It may not be as easy as it sounds.

--Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr
 

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