( CD) now is leaning toward selling its online travel division, in another sign of the globetrotting ambitions of deep-pocketed private equity firms.
Cendant shares rose 5% Monday after the company said it had received unsolicited bids for the travel unit, which owns the Orbitz Web site. Cendant had planned to spin off the unit to shareholders later this year as part of a breakup of the travel-and-property conglomerate. But the company is now reconsiding the travel spinoff after taking some calls from would-be buyers.
"The company's decision to consider a sale in addition to pursuing the spin-off is due, in part, to the fact that a sale of TDS is not expected to result in a material tax liability, as would a sale of Cendant's other divisions," said CEO Henry Silverman. "We believe that this can be achieved in either the public or private arena and we are fully supportive of the board's desire to optimize the value for Cendant shareholders."
Investors liked the move, sending shares of New York-based Cendant up 85 cents to $17.70. The stock has barely budged since the start of the year.
Though the company didn't say how much it expected to get for the unit, both
The New York Times
The Wall Street Journal
said it could fetch more than $4 billion. Investors believe the interest in the business has come from private equity firms, the names of which Cendant has declined to disclose.
"The fundamental margins are pretty decent at Cendant's Travelport operations," says Jim Wilson, an analyst with JMP Securities in San Francisco, who rates Cendant as market outperform and has a $20 price target. "They are having difficulty growing because of the competition in the space. You have a large, fairly stable cash-flow business, which is exactly what private equity guys look for."
Last week, Cendant named former computer industry executive Jeff Clarke to head the business and ex-Continental Airlines head Gordon Bethune to be Travelport's chairman. The unit includes the
Cheaptickets Web sites.
If the travel unit is sold, Cendant will use the cash proceeds to pay down debt. The company will retire, redeem or repay all of the travel unit's outstanding debt whether it's sold or spun off.
Cendant has retained
and Evercore Partners as its financial advisers in connection with the potential sale. Citigroup and JPMorgan have developed financing for the winning bidder.
The sale of the travel business won't have any impact on Cendant's plans to spin off Realogy, its residential real estate business, and the hotel chain Wyndam Worldwide to shareholders. This will create three separate public companies. Cendant will retain the car-rental business and will rename itself Avis Budget Group.
Wall Street, which is pessimistic about e-commerce companies, is particularly worried about online travel agencies. Not only do the sites compete with each other, they also need to fight for business with hotel chains, airlines and other suppliers. In addition, price-conscious travelers can turn to numerous travel search engines to help them find the best deal, including
Investors will see if their skepticism is justified when
, which had a disappointing fourth quarter, reports-first quarter earnings on May 11. Analysts are expecting the largest online travel company to have earnings of 22 cents on sales of $546.9 million, according to Thomson Financial.
also isn't in favor on Wall Street these days. Most analysts who follow the stock rate it as a hold. The largest Web merchant is due to report first-quarter results Tuesday. Analysts are forecasting earnings of 12 cents per share on sales of $2.23 billion, according to Thomson Financial.
Investors already have been disappointed with one big e-commerce company. Last week,
disappointed investors when it didn't raise earnings guidance after reporting an in-line first quarter. The largest auction site also is looking to form an alliance with either Yahoo! or
to fight heightened competition from