HFS-CUC Merger Unlikely To Slow HFS
Acquisition Binge
By LYNNETTE KHALFANI
Dow Jones Newswires
PHILADELPHIA -- Now that world-class franchiser HFS Inc. (HFS) has
agreed to team up with marketing powerhouse CUC International (CU),
where does HFS go from here?
Well, to start with, don't count on the $11 billion merger appeasing the
acquisitive appetite of HFS Chief Executive Henry Silverman. In fact,
both HFS and CUC are likely to leverage their new-found financial
strength to complete more mergers and acquisitions, observers said.
''These companies both have a lot of cash and a lot of buying power. So
the problem isn't money, the problem is finding businesses of significant
size'' that will help increase profits, said Rodman & Renshaw analyst
Barry Bryant.
And boosting the bottom line has been a preoccupation of Silverman. A
one-time lawyer turned Wall Street deal maker, Silverman's HFS has
spent nearly $6 billion on acquisitions since mid-1990.
HFS, based in Parsippany, N.J., owns real estate brand names Century
21, Coldwell Banker and ERA, along with hotel brands Days Inn,
Howard Johnson and Ramada. Last year, HFS plunked down $800
million for the Avis rental car company and also bought PHH Corp. - a
corporate relocation, mortgage and car-fleet management firm - for $1.7
billion.
Most recently, rumors have swirled about HFS acquiring direct-marketing
company Signature Group, a unit of Montgomery Ward. Both CUC and
HFS are believed to have pursued Signature. One industry source familiar
with the matter said CUC offered as much as $800 million for Signature
but was turned down.
But with the CUC deal in the bag, some people are wondering whether
Signature might still be a likely HFS target.
The answer, according to experts, is probably so.
''To some extent it depends on how similar the customer bases (of CUC
and Signature) are,'' said Thomas Graves, an analyst at S&P Equity
Group.
A key factor to consider would be how many incremental customer names
HFS would get from Signature that aren't available from CUC, Graves
added.
Said PNC Institutional Services analyst Bruce Thorp: ''HFS has said for a
while that it's interested in a marketing company. CUC certainly fills that
bill, but that doesn't mean there might not be some smaller add-on
companies that HFS could acquire.''
Bryant, the Rodman & Renshaw analyst, figures Signature is worth
between $600 million and $1 billion. The analyst expects CUC and HFS -
now that they've teamed up - to jointly go after Signature.
In the past, HFS also has made public its desire to expand in the rental car
business. In particular, Silverman wants to cater to the leisure market; Avis
primarily serves business clientele.
''This deal with CUC wouldn't preclude their pursuing other opportunities
in the rental car industry,'' said Thorp.
Analysts don't expect HFS to expand into another line of business unless
it somehow ties into the company's existing mix. The key for HFS,
observers said, is to seek out opportunities to cross-market its brand
names among an ever-growing customer base that, with CUC, now totals
about 170 million people.
Additionally, a combined HFS and CUC - with $4.3 billion in revenue - is
seen enhancing both companies' opportunities for global expansion. |
