HFS to Add 3 More Initials for $1.7 Billion

Continuing its wave of acquisitions, HFS Inc., which bought the Avis Corp. car rental firm only a month ago, went shopping again Monday with a rich $1.7-billion deal to buy PHH Corp., a company with complementary real estate and automotive businesses.

Parsippany, N.J.-based HFS, the nation’s largest hotel and real estate franchiser, said it would acquire PHH, a provider of corporate relocation and other financial services, for $49.50 a share, a 60% premium over PHH’s closing price Friday.

After the news, PHH’s stock soared $16.75 to $47.50 on the New York Stock Exchange, and HFS lost $1.25 to $72.875, also on the NYSE.

HFS said it would issue 23.2 million shares in exchange for PHH’s 34.8 million common shares.

PHH, based in Hunt Valley, Md., handles car leasing, real estate and insurance services for 3,000 corporate and government clients that relocate their employees.

Wall Street analysts applauded the deal, noting that it was unlike most acquisitions, which can require a year or more of integration before earnings-per-share growth resumes.

“This deal is immediately accretive to earnings,” said Michael Mueller, an analyst at Montgomery Securities. “It’s a case where being part of HFS strengthens PHH and vice versa.”

PHH, which has annual revenue of $600 million and earnings of $86 million, operates in the U.S., Canada and Europe.

“PHH is a perfect strategic fit within HFS and represents our continued evolution into a global service provider for consumers, corporations and other organizations,” said Henry Silverman, chairman and chief executive of HFS.

“In corporate relocation, our existing business combined with PHH’s relocation and other real estate services will benefit the transferring employees of our corporate customers as well as our franchised real estate brokers,” he said.

Silverman also said PHH’s fleet leasing would boost HFS’ fleet business and its Avis rental car operations.

“It’s a terrific deal, really from the perspective of both parties,” said Mark Manson, an analyst at Donaldson, Lufkin & Jenrette. “There just seem to be a lot of ways these companies augment each other.”

Among the links analysts cited is that between PHH’s auto fleet management operation, which buys cars for corporate leasing, and Avis, which HFS acquired for $800 million last month.

The most powerful of the integration opportunities may be in the combination of PHH’s relocation and mortgage businesses with HFS’ vast army of real estate brokerages, which include Coldwell Banker, acquired in May for $740 million, and Century 21, which was acquired in August.

“HFS continues to make smart acquisitions,” said Scott Bleier, chief investment strategist at Prime Charter Ltd. “This fits with their most recent acquisition of Avis.”

At first, HFS and PHH would probably benefit on the purchasing side of the auto business, analysts said. “PHH buys 100,000 cars a year,” said Manson, ticking off volume purchase discounts as the most immediate possible synergies.

Another potential benefit is in the disparate customer bases of the two companies. PHH relies largely on corporate and government contracts, analysts said, and HFS tends to serve individuals.

HFS also owns real estate franchiser Electronic Realty Associates, which was purchased within the last year, and has a $625-million-plus acquisition of Indiana-based Resort Condominiums International Inc. pending, with closing due by the end of the year.

HFS said it would take a one-time charge as a result of the PHH acquisition, which is expected to be completed in the first quarter of next year.