Wednesday July 29, 1:45 am Eastern Time
Cendant Chairman Forbes quits, Silverman steps in
By Brendan Intindola
NEW YORK, July 28 (Reuters) - A grim, seven-hour meeting of Cendant Corp.'s 28 directors in midtown Manhattan Tuesday ended with the resignation of chairman Walter Forbes and nine directors, the consequence of $700 million in accounting fraud and errors at the former CUC International.
Representatives from Arthur Andersen and Deloitte & Touche made three hours of presentations at the meeting, detailing $500 million in accounting deception, and $200 million in errors over the past three years at CUC, the membership-based consumer services company that merged with HFS Inc last December in an $11 billion deal creating Cendant.
As part of the management purge, Henry Silverman, who was chairman of HFS, was elected Cendant chairman and will continue to serve as chief executive and president, the company said in a statement. Forbes was previously chairman of CUC.
Under the merger agreement, Forbes and Silverman were to have swapped jobs on Jan. 1, 2000.
The vote to reconstitute the board was unanimously approved by the 28 directors, according to individuals with knowledge of the proceedings, which took place at the offices of Cendant's outside law firm, Skadden, Arps, Slate, Meagher & Flom.
Forbes departs with a $35 million severance package that was negotiated over the past four weeks, the sources said. Cendant said the package will result in a charge of about $0.03 per share in the third quarter.
Terms of Forbes' departure represented a compromise between the 14 HFS directors on the board who wanted the chairman ''terminated for cause'' and the 14 CUC directors who opposed such a measure, the individuals said.
At the meeting, the directors were told by Arthur Andersen investigators that 61 percent of CUC's 1997 net income last year was ''non-existent'' and ''90 percent of that (61 percent) was fraud.''
The accounting improprieties were uncovered at CUC earlier this year, and were first announced in April.
Cendant is a marketing and frachising giant, with a portfolio of brands that range from Century 21 real estate brokerages and Days Inn motels to the Welcome Wagon and PHH Corp., a provider of home mortgages and vehicle fleet management.
A securities analyst who tracks Cendant, who asked not to be named, said, ''I think it's clear who's leading the ship and it's Henry Silverman. It seems some of the hand-wringing uncertainty has been eliminated from the story and now it's back to the basics of running this business and having an organization that will conclusively have the vision of Cendant going forward.''
Added Craig Bibb, who recently departed PaineWebber as the analyst following Cendant to run a hedge fund, ''It came a lot easier than what a lot of people on the street expected. There had been a lot of concern that this issue would be hanging over the company for a while and maybe ending up in court.''
The individuals at the board meeting said it became critical to resolve the management issues because Cendant's new-employee recruiting ''hit a wall'' with the uncertainty surrounding the company, and Cendant's future was in question among customers, particularly corporate customers.
Further, the departures represent a complete separation from Cendant of officers and directors previously affiliated with CUC, important for pending approvals by several U.S. state insurance departments of Cendant's $3.1 billion acquisition of American Bankers Insurance Group Inc (ABI - news).
Another board member associated with CUC -- Frederick Green, chairman of the board's Audit Committee -- will also leave by year-end after the committee's report is completed, leaving Cendant with 18 directors, Cendant said.
In a prepared statement, Forbes said, ''Today, it is apparent that the actions of a few have profoundly hurt us all. And, as I have said on many occasions, I had absolutely no knowledge of the accounting irregularities.''
A Forbes spokeswoman was not available to comment.
Cendant said its board also voted to scrap a governance plan that was part of the CUC-HFS merger. The plan included 80 percent super-majority vote provisions that restricted the board's ability to replace its chairman and CEO.
Cendant also rescheduled its annual meeting to Oct. 1, 1998.
Silverman said in a prepared statement Tuesday's action ''ends any uncertainty about the future direction and leadership of Cendant. That uncertainty was a serious impediment to conducting our business and the process of restoring trust in our company.
''Now we can focus all our energies on rebuilding confidence in our company and value for Cendant's shareholders,'' Silverman said. ''The company's earnings and cash flow remain strong. We have some of the most valuable businesses in the world.''
''We intend to take appropriate action against those who conducted these fraudulent activities and will continue cooperating with law enforcement authorities,'' he said.
Pressure for Forbes to step down increased last Wednesday when Cendant executives sent the company's board a letter asking that he be relieved of his duties.
Although the accounting irregularities were first announced in April, the company announced on July 14 that the initial findings of an investigation into CUC's accounting found the problems to be worse than previously expected, calling them ''widespread and systematic.''
On that day, the company's stock hit an all-time low of $14 per share. The shares were trading at around $40 before the news sent investors running.
Tuesday's announcement was issued after markets closed. Earlier, Cendant stock rose $1.25 to $17 in consolidated trading on the New York Stock Exchange.
The accounting probe's findings so far are expected to result in a reduction of Cendant's 1997 net income, before merger-related and one-time charges, of 22 cents to 28 cents per share, nearly double the previously expected impact announced in April.
Cendant reported 1997 income of $1.00 per share before one-time charges.
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Changes Abound At Cendant - (STAMFORD) -- Changes are taking place at the top of Stamford-based Cendant. Chairman Walter Forbes and nine members of the board resigned yesterday. Cendant stock has plunged from 42-dollars a share to as low as 14-dollars amid accounting irregularities. Wall Street seemed to like yesterday's news. Cendant stock was up one-and-a-quarter points.
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