Cendant confirms four-way split

US leisure and real estate conglomerate Cendant is to split into four separate divisions.

They will cover travel distribution, hospitality, vehicle rental and real estate. The Cendant name is to disappear to be replaced by new titles for the four new companies.

The spin-off is due to be completed by next summer with Cendant shareholders owning 100% of the equity in all four companies.

The Travel Network will include Cendant’s Travel Distribution Services division as well as the Vacation Rental Group and timeshare subsidiary RCI. Brands to come under this umbrella incliude Galileo, Gullivers Travel Associates, Orbitz, ebookers, OctopusTravel.com and English Country Cottages.

To be based in New York, Cendant’s Travel Network will have 17,000 staff in 140 countries and is described as “the most geographically diverse and vertically integrated travel company in the global travel industry with unparalleled scale”.

Hospitality will cover nine hotel brands including Days Inn, Ramada, Howard Johnson and Wyndam.

Vehicle rental will cover Avis in the US, Canada, Australia and New Zealand and Latin America/Caribbean and Budget Rent A Car.

Real estate will include the world’s largest real estate sales organisation Century 21.

The objective of the split is to create a clearer understanding and fairer market valuation of each of the businesses, Cendant said.

Chairman and CEO Henry Silverman said: “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 recognised the value of the company.

“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.” 

President and chief financial officer Ronald Nelson added: “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 manager event-driven risk.”

Nelson also revealed that several of Cendant’s leisure travel units began to show signs of slowing growth during the third quarter of the year. 

He said: “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.”

Nelson added: “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.” 

Report by Phil Davies