October 24, 2005
Breaking Up To Release Shareholder Value
Today, Cendant Corporation (NYSE: CD) announced that it would be breaking itself up into four separate publicly traded companies. (AP Report can be found here). Cendant, which owns Orbitz.com and Ramada and Howard Johnson hotels, will create 3 new companies each focusing on a separate area. The four proposed companies will be broken up into a hospitality business (including Ramada and Howard Johnson), a real estate business (Century 21 and Coldwell Banker), a travel booking business (Orbitz.com), and a car rental business (Avis and Budget Rent A Car).
In its news release, Chairman and CEO Henry R. Silverman stated "We and our advisers believe the sum of the parts has a value in excess of our current share price."
This move by Cendant is has become popular as of late. Viacom (NYSE: VIA.B) has already announced that it would be breaking up into two separate companies, one focusing on broadcast television, such as CBS, and the other on cable networks, such as MTV. (Prof. Oesterle discussed this in his post, Viacom Files S-4 for Split into Two Companies).
Also, rumors on the street have also discussed a possible break up of Altria Corp. (NYSE: MO) into Kraft Foods, Phillip Morris, among other companies. Wendy's (NYSE: WEN) is planning on spinning off Tim Horton's, which Prof. Oesterle discussed in his post, An Example of The New Strategy of Hedge Funds: Wendy's. McDonald's (NYSE: MCD) has also announce that it plans to spin off a minority stake in its Chipotle restaurants to increase shareholder value, which Prof. Oesterle discussed in his post, Will Ronald McDonald Put on His Smiley Face for the Hedge Funds.
After the announcement, Cendant is trading up $1.06 to 21.15, a gain of 5.28% in pre-market trading.
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