Cendant to Split Into Four Companies; Cuts Forecast (Update19)...

Oct. 24 (Bloomberg) -- Cendant Corp. founder Henry Silverman plans to break the travel and leisure company into four parts, seeking to revive a stock that never recovered from an accounting scandal eight years ago. The owner of the Avis car-rental and Days Inn hotel chain also cut its earnings forecast.

Cendant's real-estate, travel-distribution, hospitality and vehicle-rental units will become separate publicly traded companies, according to a statement issued today. New York- based Cendant will drop its name and Silverman will become chief executive of the travel company, ceasing control of the rest of the enterprise he built. The shares had their biggest drop in three years.

Silverman, who created Cendant by buying and selling 93 companies since 1997, said today the split was necessary because ``the market has not fully recognized the value of the company.'' Cendant shares have plummeted by more than a third since it merged with CUC International Inc. in 1997 and was found to have committed one of the largest accounting frauds in U.S. history.

``They needed to do something different,'' said Thomas McIntyre, who helps manage $125 million including 526,000 shares of Cendant at Orleans, Massachusetts-based McIntyre, Freedman & Flynn. ``People don't know what they're buying when they buy Cendant. The company is substantially undervalued.'' He said Cendant's market value may rise to $30 billion based on the $2 billion in free cash flow generated each year.

Shares of Cendant have fallen 41 percent since 1998 when Cendant said CUC overstated profit by $286 million. Cendant lost about $14 billion in market value after reporting accounting problems at CUC, which merged in 1997 with HFS Inc. to form Cendant. Kirk Shelton, who resigned as vice chairman amid the scandal, was sentenced to 10 years in prison in August. Walter Forbes, who resigned as chairman, began retrial for securities fraud earlier this month.

The stock fell $1.32, or 6.6 percent, to $18.77 at 4:03 p.m. in New York Stock Exchange composite trading. The shares have dropped 9.9 percent this year through Oct. 21, while the Standard & Poor's 500 Index has declined 2.7 percent.

The company considered ways to boost the stock price since last November, Silverman said on a conference call. Other alternatives included selling units, a leveraged recapitalization or splitting the company in a different manner.

``Doing nothing was not an option,'' Silverman said.

Cendant, which reports earnings today, cut its fourth- quarter forecast by four cents a share, blaming weakness in its travel businesses brought on by higher gasoline prices and reduced travel in Europe. Results will also be hurt by costs to combine two timeshare businesses. Cendant said it will earn 23 cents to 26 cents a share.

Third-quarter net income fell 13 percent to $514 million, or 49 cents a share from a year ago after Cendant spun off units and lost business from Hurricane Katrina. Revenue rose 12 percent to $5 billion. Cendant said it earned 44 cents a share excluding discontinued operations, missing the 46-cent average estimate of nine analysts polled by Thomson Financial.

The company said it would not give a 2006 profit forecast because of the split. Next year's earnings before interest, taxes, depreciation and amortization will rise as much as 13 percent, with a 10 percent increase in revenue. That compares with a previous forecast of 19 percent for profit and 11 percent for sales.

Silverman, 65, is a former investment banker at Blackstone Group Inc. While there, Silverman became head of the firm's Hospitality Franchise Systems Inc., which owned the Days Inn, Ramada and Howard Johnson hotel brands. Blackstone later spun off the unit.

After leaving Blackstone 1991, Silverman managed the hotel company, then called HFS Inc. It expanded with purchases of residential real estate brokers including Century 21 and Coldwell Banker and tax preparation company Jackson Hewitt Inc. in the 1990s, tapping into the growing number of baby boomers in the U.S.

Cendant shares trade at less than the $39.44 high reached in 1998 after Silverman's HFS merged with marketing firm CUC International. The stock plunged to a low of $18.17 the month Cendant said CUC overstated profit.

Cendant follows other companies that have pursued higher share value by splitting up this year. Barry Diller's IAC/InterActiveCorp spun off its online travel unit, Expedia Inc., in August. Viacom Inc., the No. 3 U.S. media company, is planning to split into two by the end of the year.

Cendant said the split will occur in 2006 and will be tax- free for the company and shareholders, who will own 100 percent of the new businesses. Investor approval isn't required, the company said.

Cendant said Richard Smith will be chief executive of the real estate services unit and Silverman will lead the travel network, which includes its timeshare business and the Orbitz online travel agency. Stephen Holmes will be chairman and chief executive of the hospitality unit, which is the world's biggest franchiser of hotels. President and Chief Financial Officer Ronald Nelson will lead the car-rental unit. All are current Cendant executives.

Michael Millman, an analyst with independent stock analysis firm Millman Research Associates in Short Hills, New Jersey, said before the announcement that Cendant may be worth $32 a share in a breakup, or 60 percent more than the current stock price.

Cendant sold or spun off businesses including an auto- fleet billing unit and a marketing-services arm in the past year. The program to divest units was completed with the sale of the marketing unit on Oct. 17.

Cendant, which hasn't chosen names for the new businesses, said it expects to pay its 11-cent quarterly dividend until the companies are formed. A $2 billion share buyback target through 2006 is ``no longer operative,'' it said in the statement.

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