Cendant Plans to Break Up
Cendant Corp., which built itself into a $20-billion conglomerate to please investors, said Monday that it was disbanding into four separate companies. The reason for the split: its unhappy investors.
But Wall Street remained grumpy with the company. Shares of Cendant, which owns Century 21 real estate, Ramada hotels, Avis rental cars and Orbitz online travel service, fell $1.32, or 6.6%, to $18.77 after hitting a new 52-week low of $18.36.
Cendant, whose stock price never fully recovered from a 1998 accounting scandal, is the latest conglomerate to decide its separate businesses are worth more split apart. The moves are a coda to the aggressive corporate buying sprees of the 1990s.
The company modeled itself as a service industry version of General Electric Co., a conglomerate that manages risk through size and diversity, company Chairman and Chief Executive Henry R. Silverman said.
But today’s hedge fund managers want more volatile stocks, stocks that make big moves, Silverman said. The buy-and-hold investors of the past, who appreciated the smooth earnings a conglomerate could deliver, are gone, he said.
Analysts say its business model isn’t Cendant’s problem. They question the strength of Cendant’s businesses.
Although Cendant posted $2.1 billion in net income on $19.8 billion in revenue in 2004, the company’s third-quarter net income of $514 million was down from $593 million a year earlier. Cendant lowered its guidance for the fourth quarter and its 2006 fiscal year, saying its travel businesses have weakened.
“This is in contrast to the strength we are seeing from our other companies,” Goldman Sachs Group Inc. lodging analyst Steven Kent said.
Goldman Sachs put a breakup price on the company of $22.37 a share, which is more than $1 below Cendant’s 52-week high for the year.
Cendant’s split, which was approved over the weekend by the company’s board of directors, will occur next summer when the company spins off 100% of the equity of the three new companies to its shareholders.
One will take over Cendant’s hospitality businesses, including the Ramada, Howard Johnson and Days Inns hotel brands. The other three also will focus on a single area: real estate, including the Century 21 and Coldwell Banker brands; travel booking, including Orbitz, Galileo and Cheap Tickets brands; and the Avis and Budget car-rental businesses.
With the breakup announced Monday, Cendant joins several large corporations that have recently trimmed their holdings in bids to win investors.
Viacom Inc. announced plans this year to split its holdings into two companies, one focusing on broadcast television and the other on cable networks.
Cablevision Systems Corp., a cable TV provider, said in June that it would go private and spin off its cable channels AMC, IFC and WE into a new company called Rainbow Media Holdings.