Cendant Corp., the sprawling travel and real-estate company that has fallen out of favor with investors, announced today that it will split itself into four companies.
The New York company will spin off three of its businesses to its shareholders, while the fourth will continue as a much-smaller company. The Cendant name will no longer exist and Henry R. Silverman, the chief executive who built the company through dozens of acquisitions, will run only the travel-distribution company. He will be nonexecutive chairman of the real-estate company.
[Henry Silverman]
Mr. Silverman, who built Cendant in a slew of deals over more than a decade, believes his strategy was correct, pointing to the company's low debt and solid cash flow. But he concedes that investors didn't agree. "This is an artistic success but a commercial failure," Mr. Silverman said.
The breakup, which is planned for the middle of 2006, was approved by the company's board yesterday. The plan ends a 15-year roller-coaster ride that saw Cendant -- which has a current market value of about $21 billion -- rise to prominence in the 1990s before falling in the wake of a huge accounting fraud perpetuated within one of its predecessor companies. Cendant's shares are less than half their price before the accounting scandal broke in 1998, wiping out $14 billion in shareholder wealth in one day.
In breaking itself up, Cendant will create four companies out of its four main lines of business: real estate, travel, hotels and car rentals. The real-estate company will include brokers Century 21 and Coldwell Banker; the travel business will consist of Cendant's Orbitz, Galileo and Cheap Tickets brands; the hotel company will include the Ramada, Howard Johnson and Days Inn brands; the car-rental company will have the Avis and Budget businesses. Cendant expects all the new companies to be major players in their industries.
Separately, after the market closes today, Cendant will announce that its third-quarter earnings were 44 cents a share, down 21% from 56 cents a share a year ago, the company said. It will also report that several of its leisure-travel businesses showed slowing growth in the quarter, partly due to the devastating hurricanes along the Gulf Coast and high gasoline prices. The company will lower its per-share estimates for the fourth quarter by three or four cents, to a range of 23 to 26 cents.
In 4 p.m. New York Stock Exchange composite trading Friday, Cendant's shares fell 45 cents to $20.09, nearly unchanged from $21.01 a year ago. Last year, Cendant reported net income of $2.08 billion, or $1.96 a share, on revenue of $19.79 billion.
Mr. Silverman has been criticized for being one of the highest-paid CEOs in the U.S., receiving tens of millions of dollars in compensation even as Cendant's stock languished. Mr. Silverman is also one of the company's largest shareholders, with 38 million shares and vested options, and has been increasingly frustrated with investors' view of the stock. "I'm basically going to work for nothing," Mr. Silverman said in an interview. "I'm going to work for no compensation going forward because I want to take the compensation issue off the table," he said. The breakup was reported by the Sunday Times of London.
The move comes as Cendant's strategy, undertaken over the past year and a half, to become a pure travel and real-estate company has fizzled with investors. The company began selling businesses last year, spinning off its mortgage-services concern PHH Corp. and offering up Jackson Hewitt Tax Services and Wright Express, a fleet-management company, in initial public offerings.
These three companies' shares have all performed much better than Cendant's since they were split off, and Mr. Silverman said that was a clear signal that investors saw more value in smaller, focused companies than in Cendant's myriad businesses. "Conglomerates are not in favor right now. We have to shift our strategy," he said.
Before deciding on the this breakup plan, the board looked at several other options, including a leveraged recapitalization of the entire company, selloffs of some of its businesses and other ways of breaking up, but concluded that breaking into four focused companies made the most sense by simplifying the businesses without having to pay taxes. J.P. Morgan Chase & Co. and Evercore Partners Inc. were advising Cendant on the breakup.
Two other sprawling companies with high-profile CEOs are carrying out similar strategies. Late last year, IAC/InterActiveCorp, controlled by Barry Diller, said it would split off its travel business, which included Expedia, a big competitor to Cendant's Orbitz. But the breakup hasn't done much for the parent company's shares, and shares of the new company, called Expedia, are down 20% since they started trading in August.
Earlier this year Viacom Inc. announced plans to separate its cable operations and film studio from its broadcast radio and TV operations. The move is expected early next year. Viacom shares have continued to sink. |
