Deal puts 95 pct of U.S. car rentals in hands of three firms

* Hertz to sell budget brand Advantage as part of deal

* Still 30 days allowed for another bid-source

* Hertz, Dollar Thrifty shares both up premarket

Aug 27 (Reuters) - Hertz Global Holdings agreed to buy rival Dollar Thrifty Automotive Group for about $2.3 billion in a deal that puts about 95 percent of the U.S. car rental market in the hands of three companies.

The sale ends more than two years of on-off takeover talks for Dollar Thrifty involving Hertz, the No. 2. U.S. car rental company, and third-ranked Avis Group Inc that have been plagued by disagreements over price and doubts about regulatory approval.

Avis could still make a further bid. The deal has no break-up fee and Dollar Thrifty is allowed to solicit another offer for 30 days, a person familiar with the matter told Reuters.

If it is confirmed, the deal will cement Hertz's position as the number two and leaves Avis far behind in third. Privately held Enterprise Holdings, with its Alamo, National and Enterprise brands, is far and away the market leader.

Shares of the Park Ridge, New Jersey-based Hertz jumped 14 percent in premarket trade on Monday, while Dollar Thrifty shares traded up 7 percent.

Dollar Thrifty, the final big target in an industry that has consolidated rapidly, this month urged Hertz to make a compelling bid or leave it alone.

Hertz will buy Dollar Thrifty for $87.50 per share in cash, a premium of 8 percent over Dollar Thrifty's Friday closing price of $81 on the New York Stock Exchange, and almost double a $1.2 billion offer Hertz made in April 2010.

"I am disappointed," said one of Dollar Thrifty's top shareholders, who declined to be identified.

Premarket trading suggested Hertz got a better end of the deal and the offer should have been at $90 or above, the shareholder said.

Several top Dollar Thrifty shareholders told Reuters last week they would likely accept a takeover offer from Hertz that valued the company at more than $87 per share.

Avis' entry into the bidding in 2010 pushed up the price for Dollar Thrifty, which was at one point during the financial crisis was offered $2 per share by Hertz.

Avis withdrew its offer after it bought Avis Europe last year for about $1 billion.

"Hertz has made a compelling offer to our stockholders that reflects the strength of our business," Dollar Thrifty Chief Executive Scott Thompson said in a statement.

In a bid to win regulatory approval for the deal, Hertz has agreed to sell its budget brand, Advantage, to Franchise Services of North America and Macquarie Capital. That sale is conditional on completing the Dollar Thrifty purchase.

Hertz did not specify the sale price but Bloomberg news, quoting a person familiar with the matter, reported the unit would be sold for $16 million.

Advantage competes directly with Dollar Thrifty in the budget car rental market.

Franchise Services is headed by Sanford Miller, who was once the CEO of Budget Group Inc, which is now a part of Avis.

Hertz said late on Sunday it expects at least $160 million of annual cost savings from the transaction.

Lazard, Barclays, Bank of America Merrill Lynch and Deutsche Bank are financial advisers to Hertz, while J.P. Morgan and Goldman Sachs are advising Dollar Thrifty.

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