Avis Budget announced a proposed settlement with Pentwater Capital regarding a short-swing profit lawsuit.
- Avis Budget said Pentwater Capital would pay $650 million to resolve litigation under Section 16(b) of U.S. securities law.
- The agreement still requires court approval and, if finalized, would strengthen Avis’s finances.
- Earlier this month, JPMorgan and Barclays raised their price targets on Avis, citing potential demand from major events.
Avis Budget Group (CAR) stock gained 2% premarket on Tuesday as the rental-car operator agreed to settle a legal dispute with Pentwater Capital Management LP tied to alleged short-swing trading profits.
CAR To Receive $650 Million As Settlement
On Monday, Avis disclosed in a SEC filing that it entered into a Settlement and Release Agreement with Pentwater and related parties on June 19. The arrangement is intended to resolve ongoing litigation brought by Avis Budget seeking recovery under Section 16(b) of the Securities Exchange Act of 1934.
The proposed resolution calls for Pentwater to pay $650 million in cash to Avis Budget.
The agreement has not yet become final. A court must approve the settlement before any payment is completed. As part of that process, the court is expected to evaluate whether Avis Budget actively pursued the claims and whether the proposed amount represents a fair and reasonable outcome.
If finalized, the payment would strengthen Avis’s financial position and bring the legal dispute to a close.
CAR Stock Surge And Selloff Spark Legal Dispute
The dispute between Avis Budget and hedge fund Pentwater Capital began after a dramatic rise and fall in Avis shares earlier this year. Pentwater, one of the company’s largest shareholders, increased its position as the stock was heavily shorted, helping fuel a sharp rally that pushed the share price to record levels.
Pentwater later sold millions of Avis shares, causing the stock price to fall sharply. Avis then sued the hedge fund under Section 16(b), a law that requires large shareholders to return certain profits from short-term stock trades.
Analysts See Improving Outlook For CAR
Earlier this month, Avis Budget received fresh support from Wall Street analysts after both JPMorgan and Barclays raised their price targets on the rental-car company.
JPMorgan analyst Rajat Gupta increased his price target on Avis Budget shares to $155 from $140 while maintaining an Underweight rating. The firm believes rental-car operators could benefit from FIFA World Cup and America 250 celebrations.
Barclays upgraded the stock to Equal Weight from Underweight and lifted its price target to $160 from $140. The firm pointed to management’s decision to internalize certain operational functions previously handled by an outside provider as a key reason for its revised outlook.
Barclays estimates that bringing those services in-house, following the termination of a contract with Verra Mobility (VRRM), could generate an additional $50 million to $75 million in EBITDA by 2027.
CAR Retail Traders View
On Stocktwits, retail sentiment around CAR’s stock remained in ‘neutral’ territory.
A user said, “$CAR $650M barely makes a dent in $28B in debt. Plus, settlement will free Pentwater to sell off its position of 3.5M shares.”
Another user said, “They cannot run a profitable company, the CEO has zero experience running a company, and the debt load is unsustainable. They will be forced to file bankruptcy in 1-2 years.”
CAR stock has gained over 45% year-to-date.
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