Transworld Plans Sale of Its Century 21 Unit : Price for Real Estate Subsidiary May Reach $200 Million; Parent to Buy 11% of Own Stock
Transworld Corp., which last year spun off Trans World Airlines into a separate company, said Tuesday that it now wants to sell its Century 21 Real Estate Corp. subsidiary, the nation’s largest real estate franchise firm.
Financial analysts estimated Transworld will get between $125 million and $200 million for Irvine-based Century 21, which had operating earnings of $20 million in 1984 on revenue of $64.1 million.
Transworld also announced that it will repurchase up to 4 million shares of its common stock--about 11% of the total shares outstanding--on the open market during the next two years.
“Since we believe the stock is undervalued at present, it represents an attractive investment for us,” Transworld Chairman and Chief Executive L. Edwin Smart said in a statement.
Transworld stock rose $1.125 a share Tuesday to $36.375.
Financial analysts and officials of both companies generally agreed that the sale of Century 21 is a good idea because it allows each firm to head in separate directions. Century 21 officials likened the sale to a “friendly divorce.”
“It makes sense,” said John Kalmbach, an analyst for Merrill Lynch & Co. in New York. “Century 21 is the one business that didn’t fit in” at Transworld.
Gary Cooper, executive vice president for Century 21, said “at least 10” companies have said they’re interested in buying the real estate franchise firm, but he declined to identify the suitors.
Transworld bought Century 21 six years ago for $91 million in cash and stock at a time when it had more of a conglomerate image. Officials at New York-based Transworld said the divestiture of Century 21 will allow the firm to focus on hotel and food services, its principal operations.
Among Transworld’s best-known properties are its Hilton International hotel chain, which operates 134 hotels worldwide, and Canteen Corp., the food-service firm. Transworld spun off its 81% interest in TWA to its shareholders in February, 1984.
Century 21 officials say their operations would fit best with a financial-service firm or a company looking to enter that field. Among the logical buyers, analysts say, are large financial institutions, retailers or industrial companies that want to compete with Sears, Roebuck & Co. Sears owns Coldwell Banker, a major real estate brokerage.
Century 21 officials estimated that it will take several weeks to find out who the serious bidders are and several months to consummate a sale. Coleman Sullivan, Transworld’s director of financial relations, said Transworld would prefer that the deal involve cash and be completed before year-end.
There is a possibility that Century 21’s management will come up with its own offer--a prospect raised by Century 21 Chief Executive Richard J. Loughlin in a statement--but company officials downplayed the possibility in later phone interviews.
That’s only a “semi-serious” idea, a company spokesman said, adding that the “most likely possibility is a friendly sale to another corporation. I doubt a corporate repurchase will happen.” One problem with a management buy-out, Cooper added, is that it might burden the company with too much debt.
Century 21 was founded in 1972 by entrepreneur Art Bartlett, who started by opening 17 offices in Orange County. When Bartlett sold the firm seven years later, Century 21 had more than 7,000 franchises throughout North America.
Century 21 now operates about 6,500 franchises in the United States, Canada and Japan. Though it had to close about 1,000 offices during the real estate recession of 1981 and 1982, it has posted an operating profit every year since the Transworld acquisition. CENTURY 21 REAL ESTATE CORP. AT A GLANCE Irvine-based Century 21 Real Estate Corp. is the nation’s largest franchised real estate brokerage business, with 6,500 franchises and a sales force of about 75,000 in the United States, Canada and Japan. It handled the sales of more than 500,000 existing homes in 1984, about 11% of the U.S. market. The company, a wholly owned subsidiary of Transworld Corp., has about 600 employees and subsidiaries dealing with mortgages, insurance and real estate securities. In millions of dollars
1984 1983 1982 1981 1980 Operating revenue 64.1* 55.2 33.6 37.9 38.1 Operating income 20.1 20.1 6.6 8.6 8.5
12% of Transworld consolidated operating income. *3.2% of Transworld consolidated operating revenues.