Posted on: Tuesday, August 14, 2001
New York-based Cendant to buy Cheap Tickets
Advertiser Staff and News Services
The sale of Cheap Tickets Inc. to New York-based Cendant Corp. is not expected to have any immediate effect on Cheap Tickets' Honolulu operations, its chief executive said yesterday.
"It's still way too early to know whether any individual positions or areas (throughout the company) will be impacted either positively or negatively," said Sam Galeotos, Cheap Tickets' president and chief executive officer said of the sale, which was announced yesterday.
"Cendant is a very large company, and Hawai'i is very attractive to Cendant," in part because of its location and proximity to Asia, Galeotos said. "I would feel comfortable in stating that we see a lot of value in being here. We may add some functions here."
Cheap Tickets has its headquarters in Honolulu and has about 440 employees here, including more than 200 at a call center. The company has about 900 employees on the Mainland, with call centers in Tampa, Fla.; Colorado Springs, Colo.; Los Angeles; and Lakeport, Calif.
Cendant said it will buy Cheap Tickets Inc. for $425 million in cash. Cendant agreed to pay $16.50 each for outstanding shares of Cheap Tickets, or 39 percent more than the closing price Friday.
Cheap Tickets closed yesterday at $16.33 a share, up $4.48. Cendant closed yesterday at $19.62 a share, up 42 cents.
Cendant's holdings include rental car company Avis, hotel businesses Ramada, Days Inn and Super 8, and RCI, a time-share and vacation exchange firm, Galeotos said.
Cendant, which has 28,000 employees, also franchises real estate brokerages such as Century 21 and Coldwell Banker. The company had net income of $602 million in 2000.
The deal would add 1 to 2 cents to Cendant's per-share earnings in 2002, and 3 cents in 2003, the companies said in a statement. Cendant wpi;d also get $145 million in cash or cash equivalents, lowering its net cash outlay for Cheap Tickets to about $280 million.
"Cendant plans to have a portal for all types of travel, including airline, hotels, car rental and time share," said Mike Happel, a Morgan Stanley Dean Witter & Co. analyst.
Cendant said it would combine Cheap Tickets with its own travel business to offer consumers trip packages.
In June, Cendant said it would pay $3.3 billion for Galileo International Inc., which books nearly a third of the world's travel reservations over its electronic network. Galileo receives fees each time a travel agent or Web site uses its service to book airline, hotel or car reservations.
Cheap Tickets, which was founded in Honolulu in 1986 and has had dramatic growth since then, is primarily a telephone and online distributor of discount airline tickets.
The company has contracts with dozens of airlines to sell nonpublished fares and has recently begun to provide similar services for hotels, car rental agencies and cruise operations. More than 95 percent of the firm's gross travel bookings are with airlines, Galeotos said.
"As we looked to the future, we needed to round out our product line and partner with organizations that allow us to be successful long-term," Galeotos said of the sale to Cendant.
The transaction is expected to be completed in the fall, barring any regulatory intervention. Randy Havre, a Honolulu stock analyst, said the deal should benefit both companies.
"This move is going to make for a stronger entity for both of them, because those guys are going to be able to cross-market a lot of different companies and services," said Havre, who is chief executive officer of Hawaii Venture Group.
Cheap Tickets is one of Hawai'i's best-known business success stories. It was launched in 1986 when the husband-wife team of Michael J. and Sandra T. Hartley opened their first retail store in Honolulu with personal savings. A year later they started a toll-free telephone number.
In 1997, they launched an e-commerce site. In 1999 the company went public, selling shares for $15 each. Within five months the share price had climbed to $60 in the boom for Internet stocks.
But Cheap Tickets has had a downturn recently, including a 75 percent decline in second-quarter profits and the announcement it would close all but one of its about a dozen walk-in stores. Its share price stood at $11.85 Friday.
Galeotos attributed the recent earnings decline to necessary investments by the company.
"Cheap Tickets has always been a very profitable company and very much in that respect unlike that of many competitors," Galeotos said. "But it's a double-edged sword. We're competing in an arena where people are investing in marketing and technology to a greater extent than we were, and then you risk being drowned out."
The Cheap Tickets purchase marks the third major Hawai'i company to be sold this year. In June, Liberty House was sold to Cincinnati-based Federated Department Stores, and in May, First Hawaiian Bank's parent, BancWest Corp., was sold to BNP Paribas SA, France's largest bank.
Cendant probably will roll Cheap Tickets into Galileo's Trip.com Internet travel business after the purchases close, Morgan Stanley's Happel said.
