Cendant Up 9%; Ex-Execs' Guilty Plea Seen
Removing Cloud
Dow Jones Newswires
By Christopher C. Williams
New York -- Shares of Cendant Corp. (CD) gained in active trading after
former executives pleaded guilty to accounting fraud, vindicating Cendant's
chairman and current management, according to analysts.
"This removes a dark cloud that's been unfairly hovering over the existing
management team," ING Barings LLC analyst Karen Ficker told Dow Jones
Newswires. The developments support the company's take that they were
deceived as well, said Ficker, who repeated her buy recommendation on the
stock Thursday.
This should "boost Cendant's credibility," said Morgan Stanley Dean Witter
analyst Michael Happel, who repeated his outperform rating. "Cendant was a
victim.'
Cendant shares were recently up 1 1/8, or 9%, to 13 9/16 on volume of 8.1
million compared with average daily volume of 4.7 million.
On Wednesday, three former executives pleaded guilty to criminal charges of
fraud. The Securities and Exchange Commission brought charges against
these former CUC International officials and four CUC managers, charging
them with falsifying earnings over more than a decade.
CUC merged with HFS Inc. in 1997 to create Cendant. Cendant announced
the accounting irregularities in April 1998. The news decimated the stock and
sent Henry R. Silverman, who headed HFS and is chairman of Cendant, on a
crusade to clear his name and the company's. Silverman has long maintained
that the management team at CUC hid the fraud from the public and former
HFS prior to the merger. The SEC said the fraud began in 1985 and
continued after the companies were merged.
Cendant has cooperated with the SEC, which noted that the New York
marketing and franchising company promptly took action once it discovered
problems with CUC's books.
The SEC probe continues. But, as Ficker notes, it's shifting to former top
CUC officials and not members of the current Cendant team.
Happel added that Cendant may also be able to collect some money from the
former officials and even Ernst & Young LLP (X.EYG), CUC's auditors.
Cendant has filed suit against Ernst & Young.
The three who pleaded guilty, all top financial officers at CUC, include
Cosmo Corigliano, Anne Pember and Casper Sabatino.
An article in the New York Times business section Thursday highlighted
Silverman's efforts and said that, with the taint removed, investors may now
return to Cendant.
Formal approval of the settlement is expected on June 28, noted Morgan
Stanley's Happel in a research note.
ING Barings analyst Ficker said she sliced 8 cents off her 2001 earnings
estimate to $1.11 a share due to the rising interest rate environment and its
impact on the interest Cendant will have to pay on the $2.85 billion settlement
of a class-action suit. She maintained her $1.03 projection for this year.
Chief executive Silverman suggests he's more comfortable with Ficker's
reduced 2001 view than with First Call/Thomson Financial's $1.14 consensus
estimate.
"All the analysts will come around to" ING's number once they recalculate
their assumption of the interest on the settlement, Silverman told Dow Jones
Newswires.
Silverman said he's comfortable with analysts' projections of more than $2
billion in earnings before interest, taxes and amortization for 2001.
For the nearer term, he said he's comfortable with analysts' 2000 earnings
estimates of $1.04. "We are having a very strong quarter and all our units are
performing very well," he said. Analysts are expecting Cendant to earn 24
cents for the current quarter, compared with 23 cents a year earlier.
Silverman said the company is pleased with recent developments in the
accounting probe, "but we feel that closure won't occur until all the
responsible parties are brought to justice."
As reported, Cendant is suing former CUC senior managers Stuart L. Bell
and E. Kirk Shelton.
Silverman said it isn't important whether he feels personally vindicated by the
guilty pleas of the former CUC executives. He said the news is positive for
Cendant shareholders.
"Investors were concerned if there were any more shoes to drop on the
company or current directors," but the SEC ruling makes it clear that current
Cendant officers were the victims, he said. "Investors are relieved that the
closet is empty."
Silverman added that Cendant and the SEC have "resolved any and all
outstanding issues" and the company wasn't required to pay any fines.
According to Silverman, there has been a marked change in morale of
Cendant employees in the last 24 hours. "Employees are energized," he said,
which should benefit shareholders.
- Christopher C. Williams, Dow Jones Newswires; 201-938-5219;
christopher.williams@dowjones.com |
