Cendant to break up, drop name
Four companies will be spun off from the conglomerate, affecting the travel, hotel and real estate industries.
By MARK ALBRIGHT
Published October 25, 2005
Unable to fully restore its stock price seven years after an accounting scandal, Cendant Corp. will break into four independent companies and drop its tainted name.
"The market has not fully recognized the value of this company," said Henry Silverman, Cendant's 65-year-old chairman and chief executive officer. "Doing nothing was not an option."
The effect of all the spinoff companies being created will ricochet around the travel, hotel and real estate industries, where Cendant units are among the biggest and most established players. The four business units that will be unleashed as yet-unnamed stand-alone stocks by next summer include a huge stable of familiar brand names.
One group will include the Avis and Budget Rent A Car brands, which combined are second in size only to Enterprise Rental Car. A second group will include Coldwell Banker, ERA and Century 21, the nation's biggest collection of residential real estate brokerage networks. A third unit will be made up of travel booking giants Orbitz, Cheap Tickets and RCI, the biggest time-sharing exchange. The fourth will be a hospitality company that owns and franchises nine hotel chains, including Ramada Inn, Days Inn, Howard Johnson, Travelodge, Wyndham and the Orlando-based Fairfield Resorts and TrendWest time-sharing resort businesses.
Cendant becomes the latest in a series of complex conglomerates to be broken up in hopes that investors can more easily evaluate their moving parts.
Barry Diller's IAC/InterActiveCorp, a Cendant competitor, recently split off its travel distribution units from IAC's other businesses, such as HSN in St. Petersburg. Viacom, the media giant, has been doing the same since it cast off video giant Blockbuster Inc. a year ago.
Although details were not spelled out, Cendant shareholders will get a stake in each of the new companies, but the corporate debt will be refinanced or lumped into selected units.
After shaping Cendant by buying and selling 93 companies, Silverman will remain a major stockholder in all four of the surviving business units. But he plans to be active only in the management of the travel companies. About 40 percent of Cendant's revenues come from real estate service. Names for each of the new companies will be chosen in upcoming months, but the Cendant name will be history.
"They needed to do something different," said Thomas McIntyre, who helps manage funds that hold 500,000 shares of Cendant. "People don't know what they are buying when they buy Cendant."
The company's stock never fully recovered from a $14-billion stock price collapse triggered by a 1998 financial scandal. At that time, accounting problems surfaced at CUC International, which was merged with Silverman's HFS Inc. to form Cendant in 1997. CUC was subsequently found to have inflated its earnings by $286-million. Kirk Shelton, who resigned as Cendant vice chairman at the time of the scandal, was sentenced to 10 years in prison in August. Walter Forbes, who resigned as CUC chairman, faces a retrial on securities fraud charges.
The final confirmation that something dramatic had to be done, Silverman said, came after a recent announcement that the company will pour $2-billion in free cash into a stock buyback did little to lift Cendant's stock price. He was encouraged to break up the company after the successful spinoff of other Cendant units such as the Jackson Hewitt tax preparation service.
Company officials say they think the stock market will value the four business units at 25 to 30 percent more as separate stocks than Cendant's $19.6-billion market capitalization.
Cendant has plenty of Florida links beyond the travel industry. The company closed a 163-employee calling center in Tampa in 2002. That was the same year it acquired Clearwater-based Arvida Realty Services, then the fifth-largest residential real estate brokerage network. In 1996, the year before Cendant was created, CUC paid $375-million for Ideon Corp., a troubled Jacksonville-based marketing services company. At the time, Ideon's board included Miami real estate investor Jeb Bush before he was elected governor.
The price of Cendant shares slumped 7 percent Monday after the breakup was announced. Analysts said the stock dropped because Cendant officials said the company would report earnings at the low end of an earlier forecast. Cendant shares closed at $18.77, down $1.32.
--Information from Bloomberg News was used in this report. Mark Albright can be reached at albright@sptimes.com or 727 893-8252.