Cendant to Split Into 4 Companies After Decade of Expansion

Travel, hotels and real-estate services company Cendant Corp. (CD) Monday said it would break itself up into four companies, reversing more than a decade of expansion through dozens of acquisitions.

Shares of Cendant, which also cut its earnings forecasts for the fourth quarter and for 2006, rose 4.7 percent in premarket trading on the Inet electronic brokerage system.

"It's one way of unlocking value on a lot of disparate businesses that somehow got glued together over the last 10 or 15 years," said Steve Previs, a dealer at Jefferies International in London. "I think it'll be pretty good for shareholders."

Cendant, the New York-based owner of Avis car rental, online travel agency Orbitz (search) and the Century 21 real-estate (search) brand, said the breakup was aimed at boosting the value of its stock, which has been a laggard since 1997, when a predecessor company, HFS Inc. (search), merged with CUC International to create Cendant.

The market later discovered that CUC had been involved in what was then the largest accounting fraud ever.

"The history of CUC hasn't helped," said Paul Keung, an analyst with CIBC. He said Cendant has also suffered from a "conglomerate discount."

"They're complicated and hard to fit into a portfolio," he said.

Gatherings of disparate businesses under one roof have lost favor with investors, leading to breakups and spin-offs at conglomerates including Viacom Inc.

Cendant shares rose 45 cents to $20.09 on Friday but are down about 14 percent for the year to date. They stood at $21.05 Monday.

Cendant expects to complete three tax-free spin-offs next summer. Its shareholders would hold 100 percent of the resulting four companies, which will specialize in car rentals, online travel services, real estate and hotels.

No names have been selected yet for the new companies, and the Cendant name will be retired.

Cendant, which has a market value of about $21 billion, said it would report third-quarter earnings of 44 cents a share -- at the low end of its expectations and down 21 percent from a year earlier.

Analysts' average forecast was 46 cents a share, according to Reuters Estimates. The company's third-quarter earnings report is due later in the day.

"They gave a pretty big warning on the fourth quarter. However, I think the breakup is going to dictate what goes on," Previs said. "I don't think people are going to sell on the back of the profit warning; they're probably going to buy on the back of the breakup."

Cendant believes its parts are worth more than its stock price. It said it had considered alternatives to a breakup, such as a leveraged recapitalization or outright sale of one or all of its units.

"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 recognized the value of the company," Chairman and Chief Executive Henry Silverman said in a statement.

Cendant began selling businesses about a year and a half ago, spinning off its mortgage-services unit PHH Corp. and offering Jackson Hewitt Tax Service (search) and Wright Express, a fleet-management company, through IPOs.

These companies' shares have outperformed Cendant shares, Silverman said, a clear sign that investors prefer smaller, focused companies.

In the near term, Cendant's revenue and profit growth have slowed. Fourth-quarter earnings from core operations, before interest, tax, depreciation and amortization, excluding restructuring charges, are expected to rise 14 percent from a year earlier, below its earlier forecast of 25 percent.

Cendant said its leisure-travel units began showing signs of slowing growth during the third quarter, which it blamed on worries about terrorism, recent hurricanes, and high gasoline prices, as well as a general slowdown in online businesses and a shift by more consumers to dealing directly with suppliers.

After the breakup, the new companies will be led by teams drawn from Cendant management. Silverman will serve as chairman and CEO of the travel business. Cendant Chief Financial Officer Ronald Nelson will lead the vehicle rental company as chairman and CEO.

The real-estate, hotels and vehicle-rental companies are expected to continue to be based in Parsippany, New Jersey, while the travel business will be based at Cendant's New York headquarters.

Cendant is being advised by Evercore Partners and J.P. Morgan Chase & Co.