Breakup to boost Cendant market value

Breakup to boost Cendant market value

	Published : Wed, 26 Oct 2005 00:35 By : Amy Watts Print this Story

Cendant Corp, the giant real estate, travel and finance group worth around £12 billion, announced yesterday that it would split up into four companies in order to enhance its stock value.

The New York-based entity comprising travel, hospitality and real estate businesses will drop its name, and founder Henry Silverman will no longer have control of the entire group. He will instead head the travel business.

The company is diverse and currently owns businesses such as Avis car rental service, Orbitz Travel Website, Century 21 real estate services and Ramada Hotels, among others. The conglomerate was created with the purchase and sale of 93 companies since 1997. The company’s stock value started declining soon after it merged with CUC International which was accused of overstating profit. CUC’s then vice chairman Kirk Shelton was recently convicted of committing accounting fraud and sentenced to 10 years in jail.

Cendant share prices have declined 41 percent since 1998 when the accounting fraud was reported. The company has since lost at least $14 billion (£7.9bn) of market value.

Silverman expects the market value to be boosted considerably once the entity is divided into four different companies and each becomes a separate publicly traded company. Most analysts agree that the stock is currently undervalued. They expect the post-division market value of Cendant to be between $28 billion and $32 billion with an estimate based on the $2 billion-a-year cash flow that the company generates.

The spin-offs are expected to be completed by next summer. The company has already sold off non-core businesses 18 months ago. These included the Wright Express which went public with an IPO and the mortgage-services unit PHH Corp which was spun off. Interestingly, these companies have done much better at the stock market compared to Cendant shares.

The company also reduced its fourth quarter earnings forecast by 3 to 4 cents a share. It also revised 2006 earnings forecast from 11 percent to 10 percent.