Cendant Corp. betting big on boom in travel
By Robert Burgess
Bloomberg News
NEW YORK — Cendant Corp. chief executive Henry Silverman has spent $6 billion in the last two years building the world's largest hotel franchiser into a company that also offers everything from car rentals to time-shares. He says he's not done.
Bloomberg News Service
"We do not expect this will be our last acquisition," Silverman said this month, announcing the $1 billion purchase of Trendwest Resorts Inc. to add a West Coast time-share operation with locations in Hawai'i.
Cendant Corp., owner of the Avis rental car and Days Inn hotel businesses, agreed to buy Trendwest Resorts Inc. for $1 billion in stock and assumed debt, to expand its time-share resort business on the West Coast.
Silverman is buying businesses expected to benefit from an increase in travel as the U.S. population ages. To raise more money for deals, the owner of the Avis rental car business and franchiser of hotels such as Howard Johnson and Days Inn, is selling its U.K. parking garage unit, National Car Parks, which analysts estimate is worth $1.1 billion.
This week, Cendant said its first-quarter earnings rose 43 percent as the world's largest hotel franchiser was helped by a rebound in travel and acquisition of the Avis car rental firm and other businesses. The company posted net income of $342 million, or 34 cents a share, up from $239 million, or 26 cents, a year earlier. Revenue rose 83 percent to $2.71 billion, according to company spokesman Elliot Bloom.
But investors are waiting for Silverman to prove he can make the company's diverse parts work together.
"Integrating all these businesses will be a challenge," said Edgar Peters, chief investment officer at PanAgora Asset Management, which manages $14.5 billion, including Cendant stock.
At about 14-times earnings, New York-based Cendant's shares — which closed yesterday at $18.68 — trade at less than half the average of 32-times earnings of the lodging and leisure stocks tracked by Thomas Weisel Partners.
The shares have suffered from the lingering effect of the accounting scandal and investors' concern that seven off-balance sheet partnerships used by Cendant may subject the company to unexpected liabilities.
"This is a company that has had some accounting problems in the past, and investors today are looking for simplicity in the balance sheet," said Thomas Weisel analyst Jake Fuller, who rates Cendant "buy." "Those two things have held the stock back."
Silverman, 61, declined to be interviewed. He was paid $12 million in salary, bonus and other income in 2001, up 44 percent from 2000. The executive also received options to purchase 6 million shares, which had a value of $28.1 million on the day they were granted. Silverman waived his right to an option grant this year.
Among Cendant's acquisitions last year were Galileo International Inc., the second-largest travel reservation company, and the part of Avis Group it didn't already own. Other acquisitions include travel reservations companies Galileo International and Honolulu-based Cheap Tickets. Cendant's other businesses include Century 21 and ERA residential brokers and the Jackson Hewitt tax preparation service.
Also on Silverman's wish list: a hotel chain and a car rental company, he said.
On April 1, Cendant agreed to buy Trendwest, expanding its time-share resort business on the West Coast. The company already owns Fairfield Resorts and Equivest Finance Inc., two time-share companies bought in the past year.
Silverman's goal is to boost revenue and earnings by having the company's units sell services to each other's customers.
"Cendant is all about marketing," said Fuller. "They have many distribution channels."
The Galileo purchase will allow Cendant to increase the reservation capabilities of its car rental and lodging businesses, analysts said. Customers who stay at one of Cendant's more than 3,750 affiliated time-share properties are potential customers for Cendant's Avis rental cars or 6,500 franchised hotels, analysts said.
Through its Coldwell Banker, Century 21 and ERA franchises, Cendant is involved in one of every four home sales. It is also one of the 10 largest mortgage loan providers. Cendant can market its other services to the customers of those businesses.
Cendant's shares may attract investors after this quarter, analysts said, when the company will be finished paying the cost of the shareholder lawsuit settlements for the accounting scandal.
After that, Cendant will be generating about $2.2 billion of annual cash flow to invest in its businesses, according to Lehman Brothers analyst Jeffrey Kessler, who rates Cendant "strong buy."
