Liberty Media Takes $400 Million Stake in Cendant

The deal is aimed at developing Cendant's Internet offerings.
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Cendant

(CD)

, the big hotel franchiser, said Thursday that

Liberty Media

(LGM.A)

would acquire several million shares of the company for $400 million as part of an alliance aimed at developing Cendant's Internet offerings.

John Malone

, chairman of Liberty Media, will join Cendant's board and will personally acquire another million shares.

Cendant shares jumped on the news, rising 5 5/8, or 35%, to 21 1/16, around midday Thursday. Liberty Media shares inched up 13/16, or 2%, to 47 7/16. (Cendant finished up 6 1/16, or 37%, to 22 1/2, while Liberty Media settled up 1 3/8, or 3%, to 48.)

Under the terms of the deal, Cendant and Liberty, the Englewood, Colo.-based cable television programming arm of

AT&T

(T) - Get Report

, will jointly develop Internet and cable content associated with Cendant's travel, mortgage, real estate and membership businesses.

Liberty is buying 18 million shares of Cendant's common stock, representing a 2.5% stake, and two-year warrants to purchase another 29 million shares of Cendant stock at $23 per share, which could more than double Liberty's stake if exercised.

Cendant said the investment, which is subject to the waiting period under the

Hart-Scott-Rodino Antitrust Improvements Act

, is expected to close in the first quarter.

As part of the deal, the two companies will create a new venture that will provide broadband video, voice and data content to Cendant hotels and their guests worldwide. Cendant, a New York City-based provider of business and consumer services, franchises in a diversity of industries including the

Ramada

and

Howard Johnson

hotel chains, rental car agencies, tax preparation services and the

Century 21

and

Coldwell Banker

real estate brokerage offices.

"Cendant's group of assets is a terrific platform for developing new businesses," Robert Bennett, president and chief executive of Liberty Media, said in a statement.

Henry Silverman, Cendant's chairman and chief executive, said in the statement that he looked forward to working with Liberty and Malone to develop the company's Internet offerings and to expand the services at its hotels.

The deal with Cendant is the latest in a series for Malone and Liberty. On Tuesday, the company announced a $425 million investment in broadband company

Astrolink

. The company also owns sizable stakes in

Liberty Digital

(LDIG)

,

Sprint PCS

(PCS)

,

Time Warner

(TWX)

and

News Corp.

(NWS) - Get Report

, among others.

Last week, Cendant said it reached a $2.83 billion cash

settlement in a class-action suit over accounting improprieties at one of its business units.

Karen Ficker, who covers Cendant for

ING Barings

in New York, said the deal came as "a surprise, but a pleasant surprise."

She expects each company to leverage the strength of the other: Liberty brings quality Internet content to Cendant, and Cendant has a strong distribution channel in its fleet of hotels.

Ficker calls Cendant undervalued, and said the level of Malone's involvement in the deal suggests that he agrees.

"He's very smart and he's very savvy, " Ficker said, adding that Malone's presence on the board also strengthens Cendant's depth of experienced Internet talent, an area in which the company has been lacking.

Ficker said that Cendant's settlement of the class-action suit last week may hasten other deals with Fortune 500 companies, who have been holding back because of the pending litigation.

Ficker rates the company a buy, with a price target of $29. ING Barings has helped sell some of Cendant's business operations in the past but is not currently doing any business with the company.

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