Cendant Seeks to Regain Wall St.'s Favor as It Sells Move.com
More than two years after troubling accounting irregularities at
Cendant
(CD) - Get Chindata Group Holdings Limited Report
scared investors away, the franchising giant is still looking for ways to jolt its struggling stock.
This week, the company announced a couple of deals that are part of a broader strategy to get Wall Street back on its side and restore its luster.
Cendant, known for its
Days Inn
hotel and
Century 21
real estate brands, said Friday that it would sell its Internet real estate portal to the site's rival,
Homestore.com
(HOMS)
, in an all-stock pact initially valued at $761 million.
The sale of the company's
Move.com
unit comes just two days after Cendant stated its intention to spin off a pair of divisions that sell services including discounts on travel and shopping to credit card holders.
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"The company is making all the right moves," said Henry Diamond, an analyst at
CS First Boston
, who upgraded Cendant's shares Friday to strong buy from buy. But Diamond added: "It's incredible that the stock is trading at values it hasn't traded at since 1998 when their future was very uncertain."
In April 1998, the company's stock plunged to $19 a share from $36 after Cendant, the offspring of a 1997 marriage of
HFS
and
CUC International
, acknowledged that its earnings in the prior year had been grossly overstated. A subsequent internal audit found that the problems were even worse than previously thought.
Cendant's stock has not recovered. Its shares have dropped about 60% since hitting a 52-week high of $26.94 at the start of the year, as Wall Street waits to see whether the company can emerge successfully from the turbulence. The deal for Move.com helped, sending Cendant shares up $1, or 10%, to close at $10.94 on Friday.
The deals this week are aimed in part at rewarding shareholders and stimulating a stock that the company believes is undervalued. Move.com was losing money, "like most Internet start-ups," Diamond said, even though it generated $18 million in revenue last year and $41 million over the first nine months of this year.
"The absence of a negative is a positive, and the cash burn at Move.com will disappear after the closing" of the agreement, Henry Silverman, Cendant's chief executive, said in a conference call.
Company officials and analysts alike said that as part of New York-based Cendant, Move.com's value was not reflected in Cendant's share price. "The deal achieves what we set out to do earlier this year before the IPO market fell apart, and that is to achieve public-company valuation for this entity," Silverman said.
Similarly, Cendant's announcement this week that it would spin off its membership-services and incentives units to its shareholders, combining the two groups into one company, also "was good news," because the divisions were dragging on Cendant's earnings, Diamond said.
Cendant is trying to distance itself from the accounting debacle. Last summer, three former CUC executives pleaded guilty to accounting fraud, and the company has also reached a $2.8 billion settlement with shareholders.
In recent months, the company has worked hard to turn itself around, selling a number of assets to raise cash and carrying out an aggressive stock repurchase program. It also has gone on the offensive, offering in August to purchase the 82% of the
Avis Group
(AVI)
car rental company that it did not already own.
The latest deal calls for Homestore.com to exchange 26.3 million shares of its stock for Move.com. Based on Homestore.com's closing stock price Thursday, the deal was valued at about $761 million.
Investors applauded the deal as highly beneficial for Homestore.com, and its stock soared $8.98, or 31%, to close at $37.94 Friday, increasing the value of the deal to nearly $998 million.
As part of the deal, Cendant's Move.com, apartment locator
Rent Net
, direct marketing company
Welcome Wagon
and other Web sites will be incorporated into Homestore.com's operations.
In addition, Cendant's Century 21,
Coldwell Banker
and
ERA
real estate franchises would gain exposure on Homestore.com's Web site as part of an exclusive 40-year agreement.
Brokers and agents from Cendant's real estate franchises "can continue to showcase their listings on now an even stronger vehicle on the Internet," Silverman said in the conference call.
Earlier this month, Cendant satisfied Wall Street, posting third-quarter earnings of $214 million, or 29 cents a diluted share, compared with $202 million, or 26 cents a share, a year earlier, but revenue fell 14%, to $1.2 billion, from $1.4 billion in the 1999 period.
