The Cendant Name Will be Retired; Stephen Holmes Will
Head the Hotel and Timeshare Spinoff
Following the proposed transaction, Cendant’s shareholders will own 100% of the equity in all four companies. The transaction is expected to be effected through three 100% spin-offs in the summer of 2006. It is expected to be tax-free for the Company and its shareholders.
Move Designed to Unlock Value
Cendant’s Chairman and Chief Executive Officer, Henry R. Silverman, said, “We believe that this is the right thing to do, for the right reasons and at the right time. Creating four strong and focused pure-play companies is the best way to unlock the full value of Cendant’s businesses for the benefit of our shareholders in both the short and long term. All of our businesses have done well, yet despite Cendant’s consistently strong operating and financial performance in recent years, the market has not fully recognized the value of the Company. Our successful efforts to simplify Cendant’s structure and divest non-core businesses have underscored the benefits of greater clarity and focus. With these efforts complete, we have now concluded that it is in the best interests of our shareholders to establish pure-play enterprises, as we and our advisors believe the sum of the parts has a value in excess of our current share price.”
Cendant anticipates that the separation of the Company’s core businesses will facilitate a clearer understanding and fairer market valuation of each of these businesses. The transaction is intended to reduce the complexity surrounding investor understanding and analysis of Cendant’s businesses and enable investors to choose how to diversify their Cendant holdings. Cendant also expects to attract new interest from investors who want to own stock in one or more of the separate companies, even though they might not have been as interested in Cendant’s diversified holdings as a single company.
Cendant’s President and Chief Financial Officer, Ronald L. Nelson, added, “Since mid-2004, we have created three focused public companies – Jackson Hewitt, PHH Corporation and Wright Express – through two initial public offerings and one spin-off. The share price appreciation of each of these companies has significantly outperformed its respective industry groupings, the S&P 500 and Cendant, giving greater credence to our view that the aggregate valuations of the four proposed new companies will exceed that of Cendant today.”
The Company and its advisors evaluated a number of strategic alternatives to increase shareholder value, including a leveraged recapitalization; a sale of one, several or all of Cendant’s business units; and different configurations of a separation.
“We concluded that this proposed transaction is the most feasible and the most financially attractive,” Mr. Silverman continued. “It is a tax-efficient approach and does not preclude the other alternatives considered by our Board after the separation occurs. This structure removes another layer of complexity, enables the companies to have readily identifiable market comparables and preserves most of the revenue synergies among our business units. And we will seek to preserve other synergies through arms’-length contractual arrangements.”
In considering this transaction, the Company also reassessed its previously articulated view that it manages event-related risk through size and diversity. Commenting on this reassessment, Mr. Nelson said, “Obviously, we thought long and hard about the fact that there will be more volatility in the separate travel assets than currently exists. However, each new company will be affected differently and we expect that each will be sufficiently capitalized to manage event-driven risk. Moreover, it has become clear in the last few years that the advantages of focused pure-play companies in the market outweigh the incremental benefits offered by Cendant’s hedged portfolio.”
Four Strong Competitors
“From inception,” Mr. Silverman said, “each of the new companies will be a major competitor in its sector. Each will have leading brands and market positions, strong balance sheets, significant scale and world-class, experienced management teams.”
Silverman emphasized these key strengths of the new companies:
The four new companies will be led by teams drawn from Cendant’s current senior leadership. Richard A. Smith will be Chief Executive Officer of Real Estate Services, with Mr. Silverman serving as Non-Executive Chairman. At Travel Network, Mr. Silverman will serve as Chairman and Chief Executive Officer, with Samuel L. Katz as Vice Chairman and President. Hospitality will be headed by Stephen P. Holmes as Chairman and Chief Executive Officer, while Mr. Nelson will lead Vehicle Rental Services as its Chairman and Chief Executive Officer.
“Cendant is fortunate to have these four world-class executives – Ron Nelson, Richard Smith, Steve Holmes and Sam Katz – to provide the new companies with the leadership they need,” Mr. Silverman commented. “The best way for me to make a contribution is to help Richard and Sam launch these exciting new enterprises.”
Highest Governance Standards
Each of the new companies’ Board of Directors will be composed of a diverse group of experienced directors, with a majority of independent directors and a commitment to the highest standards of corporate governance.
No Change in Operations; New Opportunities for Employees
The Company emphasized that the planned transaction should not affect the operations of its business units and that generally customers, suppliers, franchisees and other business partners should see no changes in their relationships with Cendant businesses. It also emphasized that employees generally should not be affected.
Mr. Nelson said, “The creation of four separate, pure-play companies will offer Cendant employees important new opportunities for growth. Most business unit and division employees won’t see any significant changes in their day-to-day responsibilities. And many corporate employees will have new opportunities available to them in the four new companies. One of our highest priorities will be to ensure that as many employees as possible are placed in appropriate positions at the new companies.”
Strong Capitalization, Restructured Debt
It is expected that the new companies will be prudently and conservatively capitalized, which is expected to offset any potential exposure to added market volatility they may face as focused businesses, while at the same time providing flexibility for long-term growth.
Any refinancing of Cendant’s corporate debt will be apportioned between Real Estate Services and Travel Network. Real Estate Services and Travel Network will share responsibility for the Company’s contingent liabilities. It is expected that Hospitality and Vehicle Rental Services will have no legacy corporate debt but will assume the existing securitized debt related to timeshare and rental vehicle assets, respectively.
Dividend and Share Repurchase Strategy
The Company noted that it expects to continue to recommend to its Board of Directors payment of the regular $0.11 quarterly dividend until the separation is completed. Following the separation, it is currently expected that all four companies will pay dividends, which, in the aggregate, will approximate the dividend currently paid by Cendant. Individual company payments will be determined at a later date and will be within the discretion of the respective Boards of Directors, although Cendant anticipates that the Real Estate Services and Travel Network entities will pay the substantial majority of the post-separation aggregate dividend.
The Company also said that, in light of the proposed transaction, it will re-assess its share repurchase targets as it refines the capital structure and credit ratings of each of the four new companies. Accordingly, while the Company’s share repurchase authorization remains in place, its previously announced share repurchase target of $2 billion over the course of 2005 and 2006 is no longer operative.
Company Headquarters and Names
The Real Estate, Hospitality and Vehicle Rental companies are expected to continue to be based in Parsippany, N.J., where they are now located. Travel Network will headquarter at Cendant’s current New York City office. No change in the location of the Company’s workforce is anticipated.
No new names have been selected yet for the new companies. That process will be completed prior to the completion of the separation. The Cendant name will be retired.
Stock exchange listings for the four new publicly traded companies have not yet been determined.
Cendant is being advised by Evercore Partners and JPMorgan in connection with this transaction, and its outside legal counsel is Skadden, Arps, Slate, Meagher & Flom LLP.
Conditions Precedent to Completion of Transaction
Consummation of the proposed transaction will be subject to certain conditions precedent, including final approval by Cendant’s Board of Directors, receipt of a tax opinion of counsel and the filing and effectiveness of registration statements with the Securities and Exchange Commission. Also, the separation is subject to the completion of applicable refinancings.
Approval of Cendant’s shareholders is not required.
Additional Information on Four New Companies
The proposed four new companies will represent the following proportions
of Cendant’s estimated 2005 key financial metrics:
Additional information about the four new companies is appended below.
Future Financial Results
Cendant will report its third quarter results today after the market closes. Earnings per share were $0.44, which is consistent with the low end of the range of the Company’s previous guidance.
Based upon current trends in the Company’s consumer-oriented travel businesses, EBITDA from core operating segments (excluding restructuring charges) is expected to increase approximately 14%, year-over-year, in the fourth quarter 2005, as compared with our previous projected growth of approximately 25%.
Mr. Nelson commented, “Several of our leisure travel units began to show signs of slowing growth during the third quarter. Although some of what we experienced can be directly attributed to the impact of terrorism, devastating hurricanes and higher gasoline prices, we also began to feel the impact of, among other things, the slowdown in the rate of growth currently affecting all online businesses, as well as the ongoing channel shift to supplier sites, demand weakness in certain key markets in the global distribution business, and continued economic weakness in Europe. In addition, we combined our timeshare exchange business, RCI, and our Vacation Rental Group to create the new Vacation Network Group. This combination is expected to save the Company approximately $9 million annually as well as broaden the marketing capability of our European travel business, but will result in severance and facility closing costs of approximately $0.01 per share in fourth quarter 2005. As a result of this restructuring and the slower growth noted above, the Company will reduce its projection for fourth quarter 2005 earnings per share by $0.03 to $0.04 to a range of $0.23 to $0.26. This projection does not include any potential charges associated with the transaction.”
Mr. Nelson continued, “The effect of these items on 2006 is not yet clear. However, based upon the current trends noted above, together with increased fleet costs and higher interest cost in the rental car business, we preliminarily project revenue to grow by approximately 10% and EBITDA from core operating segments to grow by 11%-13% in 2006 versus 2005, down from our previous estimate of 11% revenue and 19% EBITDA growth.”
The Company will not be providing specific earnings per share guidance
for Cendant for 2006, as it is no longer relevant due to the contemplated
transaction. The Company expects to provide guidance for each of the proposed
new companies at its 2006 Investor Day, currently planned for February
About Cendant Corporation
Cendant Corporation is primarily a provider of travel and residential real estate services. With approximately 85,000 employees, New York City-based Cendant provides these services to businesses and consumers in over 100 countries. More information about Cendant, its companies, brands and current SEC filings may be obtained by visiting the Company’s Web site at www.cendant.com.
Various risks that could cause future results to differ from those expressed by the forward-looking statements included in this press release include, but are not limited to: risks inherent in the contemplated separation and related transactions and borrowings and costs related to the proposed transactions; distraction of the Company and its management as a result of the proposed transactions; changes in business, political and economic conditions in the U.S. and in other countries in which Cendant and its companies currently do business; changes in governmental regulations and policies and actions of regulatory bodies; changes in operating performance; and access to capital markets and changes in credit ratings, including those that may result from the proposed transaction. Other unknown or unpredictable factors also could have material adverse effects on Cendant’s and its companies’ performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this press release may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this press release. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements are specified in Cendant’s 10-Q for the quarter ended June 30, 2005, including under headings such as “Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Except for the Company’s ongoing obligations to disclose material information under the federal securities laws, the Company undertakes no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless required by law.
This press release includes management’s estimate of EBITDA growth from core operating segments for fourth quarter 2005. Management believes the most directly comparable GAAP measure would be “Net Income.” As the Company has not yet completed its calculation of the gain resulting from the October 17, 2005 sale of its Marketing Services division, the Company is only capable of providing a reconciliation to Net Income before the results of Discontinued Operations. Provided below is a reconciliation of EBITDA to Income from Continuing Operations (which represents Net Income before the results of Discontinued Operations) for fourth quarter 2005 (projected) and 2004:
|Also See:||Peter Strebel Named President of Wyndham Worldwide; Jean Thomas Named EVP and Chief Marketing Officer for Cendant's Just Acquired Brand / October 2005|
|Anthony Berger Named Chief Operating Officer Cendant's Hotel Group; Other Appointments Made to Improve Franchisee and Company Value / April 2004|