Cendant Plans Split into Four Companies
STEVE INSKEEP, host:
Executives of a giant conglomerate have decided it's time to break up. Cendant owns more than a dozen large companies in real estate, lodging and travel. Now its board approved a plan that will create four publicly traded companies. NPR's Jack Speer reports.
JACK SPEER reporting:
Cendant grew into a $20 billion company through a batch of acquisitions over the last 15 years. In lodging, it owns Ramada and Days Inn; in real estate, Coldwell Banker and Century 21. The company also owns Avis and Budget Rent-A-Car. But despite presiding over a fivefold increase in earnings in recent years, CEO Henry Silverman says that growth was never reflected in Cendant's share price.
Mr. HENRY SILVERMAN (CEO, Cendant): We earned $2 billion after taxes last year. We were one of the 100 most profitable companies in the world, and yet we were clearly not one of the 100 most highly valued companies in the world. We were significantly less valued than that.
SPEER: Analysts have mostly hailed Cendant's decision to break itself into four smaller companies, focusing on core business areas. Tom Burnett is director of research at Wall Street Access, a New York-based brokerage firm. He says almost from the beginning, investors were unclear about the vision for the company.
Mr. TOM BURNETT (Wall Street Access): The four primary areas of vehicle, travel, hospitality and real estate just don't really gel. They don't offset each other. They don't work well together, and the confusion on the part of the investor is just overwhelming the quality of the brand names, and that's what the board's trying to address right now.
SPEER: But whether Cendant's parts will be worth more than the whole has yet to be determined. Charles Elson is director of the Weinberg Center for Corporate Governance at the University of Delaware. He says Cendant's troubles go back to the late 1990s when one of its predecessor companies was caught up in a major accounting scandal.
Mr. CHARLES ELSON (Director, Weinberg Center for Corporate Governance, University of Delaware): It was one of the early scandals that I think led people to begin to question the viability and correctness of our audit culture.
SPEER: When the scope of the accounting scandal was revealed, Cendant's stock plunged. Investors lost $14 billion in a single day, and since then the company's share price has languished. In announcing the move to create a group of smaller companies, CEO Henry Silverman said he expects to be able to return significant value to shareholders.
Mr. SILVERMAN: Over time, we will create lots of value, got almost 1,100,000,000 shares outstanding. If we can make the sum of the parts worth--just pick a number--$5 or $6 more, that's $5 billion or $6 billion of value we'll create. That's real money.
SPEER: Cendant is following in the footsteps of some other conglomerates that are also being challenged by shareholders. That includes Viacom, which has agreed to be broken up, and Time Warner, which is under pressure from stockholders to spin off or possibly sell some of its businesses, including AOL. Still, Cendant's shareholders seemed somewhat underwhelmed by yesterday's announcement. At one point, the company's stock was down 8 percent. But Silverman says that was mostly due to negative earnings warnings rather than because of investor dissatisfaction with the company's plans. Jack Speer, NPR News, Washington.
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