M&A

Cendant to Divide in Four

Three 100 percent spin-offs, set for sometime next summer, will yield individual companies concentrating on real estate, vehicle rental, travel, an...
Stephen TaubOctober 24, 2005

Cendant Corp. announced that it will split into four separate companies in a move that apparently repudiates its strategy as a conglomerate.

The New York-based business — which owns Century 21, Avis, Orbitz, and Days Inn — added that the newly formed companies will concentrate on real estate, vehicle rental, travel, and hospitality, although no names have yet been chosen. “Creating four strong and focused pure-play companies is the best way to unlock the full value of Cendant’s businesses for the benefit of our shareholders in both the short and long term,” said chairman and chief executive officer Henry R. Silverman, in a statement.

The transaction is scheduled to be completed in the summer of 2006 through three 100 percent spin-offs. The spin-offs are expected to be tax-free for the company and its shareholders, who will then own 100 percent of the equity in all
four companies.

Bloomberg noted that prior to Cendant’s announcement, independent research
firm Millman Research Associates valued the company at $32 per share, or 60 percent more than the current price.

For its part, Cendant noted that it expects to continue paying its regular 11 cents quarterly dividend until the break-up is completed. The company added that in light of the proposed transaction, it will re-assess its share-repurchase targets as it refines the capital structure and credit ratings of the four new companies. As a result, while its share-repurchase authorization remains in place, its previously announced share repurchase target of $2 billion during 2005 and 2006 is
no longer operative.

Since it was created in the 1997 merger of CUC International Inc. and HFS Inc., Cendant has bought or sold 93 companies, reported Bloomberg. The wire service also noted that Cendant’s stock is trading at about half its peak, reached just before the company disclosed accounting problems in April 1998.

According to Bloomberg, Cendant eventually restated earnings downward by $571 million and shelled out $3.2 billion to settle investor lawsuits. Former vice chairman Kirk Shelton received a 10-year prison sentence this summer for his role in the scandal; the retrial of former chairman Walter Forbes began earlier this month.