Cendant Says Torrance Software Unit for Sale
Beleaguered marketing and franchising giant Cendant Corp. appeared to be getting back on track, reporting solid second-quarter earnings Thursday and announcing plans to sell its Torrance-based consumer software business that analysts say could be valued at $1 billion.
Cendant’s software unit employs about 1,200 workers at its two Southland companies: Blizzard Entertainment in Irvine and Knowledge Adventure in Torrance. It also operates Sierra On-Line in Bellevue, Wash.
Parsippany, N.J.-based Cendant hired Credit Suisse First Boston to determine whether the unit should be sold in its entirety to a third party or spun off in an initial public offering.
“We inherited the business. It’s not part of our core strategic business model,” said Cendant spokesman Elliot Bloom.
The software subsidiary was owned by CUC International Inc., which merged with HFS Inc. last year. The combined company became Cendant.
“Hip, hip, hooray. It’s the right move, “ said analyst Karen Ficker of ING Baring Furman Selz in New York. She added that Cendant needed to refocus its strategy, and selling off subsidiaries unrelated to its core business is a start.
Cendant--whose holdings include Avis car rental agencies, Howard Johnson hotels and Century 21 real estate brokerages--was waylaid earlier this year when the discovery of accounting fraud forced it to restate earnings.
Knowledge Adventure is among the world’s biggest educational software developers, with popular products such as MathBlaster and ReadingBlaster. Blizzard Entertainment makes strategy games WarCraft and StarCraft, among others. Sierra On-Line is a maker of special-interest software. Analysts estimate that the software unit had about $500 million in annual sales.
If the subsidiary is sold, analysts said that it could fetch about $1 billion, or about twice its annual revenue.
News that the Torrance-based software subsidiary has been put on the block, and that Cendant this week sold its classified advertiser subsidiary Hedbo Mag International for about $510 million, was well-received by industry observers.
Analysts noted that a more refined strategy has emerged since Cendant last month replaced Chairman Walter Forbes with President and Chief Executive Henry Silverman.
“For the first time, a lot of the uncertainty is gone--no more shoes to drop,” said analyst James Pettit at Hambrecht & Quist in San Francisco. “The mess is behind them. There’s clarity in terms of who’s running the franchise.”
Cendant shares rose 38 cents to close at $16.50 on the New York Stock Exchange.
The company also reported second-quarter earnings from continuing operations of $214.5 million, or 24 cents a diluted share, contrasted with a loss of $87.9 million, or 11 cents, in the year-ago period.
Cendant said its accounting probe was complete and would result in a 28-cents-per-share cut in 1997 earnings.
