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Cendant to shed more units
October 15, 1998: 10:06 p.m. ET

Chairman vows to invest in beleaguered marketing company to turn it around
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NEW YORK (CNNfn) - A day after abandoning a $3.1 billion merger deal and agreeing to pay a $400 million breakup fee, the chairman of embattled Cendant Corp. said Thursday the company would sell off non-core businesses and raise cash to buy back shares.
     Henry Silverman, appearing on the "Moneyline News Hour with Lou Dobbs," also vowed to put his personal finances on the line by buying 1.5 million Cendant shares. Silverman has come under criticism for selling his company-granted options, rather than exercising them for stock, while he manages the $4.7-billion company.
     Silverman voiced confidence in the future of Cendant (CD), a franchise and services company that for six months has been wracked by financial improprieties in the former CUC International, a company that merged with HFS Inc. to form Cendant late last year.
     Silverman pointed out that Pepsico needed 18 months to work out its financial difficulties in the late 1980s, and he said he expected his company would need as much time.
     Here is a transcript of the "Moneyline" interview:

LOU DOBBS: Six months ago today, you announced the scandal rocking your stock and everyone following your stock and obviously the employees and the management of your company that's followed shareholder lawsuits -- dozens of them. SEC investigation, investigation by the U.S. attorney.
     Where are you tonight?
     SILVERMAN: Well, I think the -- we had a crisis. And crisis management involves trying to resolve uncertainties, which one by one we've been able to do. We had a management succession issue. We had a corporate governance issue. We had a divided board, as you know.
     We didn't have financial statements for six months. We had liquidity issues. We resolved that. We now have an effective registration statement. We're now in compliance with SEC reporting. We had an American Bankers deal, as you know, that caused major uncertainty. We've resolved that. So, I think we've knocked off an amazing number of uncertainties and removal of those uncertainties, we think, will, over time, restore confidence in the shareholders and the credit markets to Cendant.
     DOBBS: Let's talk about American Bankers. Obviously with your stock prices crashing, with the uncertainty attending so many aspects of Cendant, the deal just couldn't go forward. There wasn't much surprise about that. When did you make the decision? When was it clear to you that it couldn't go forward?
     SILVERMAN: Well, we believe we had a contractual obligation to keep trying to find a way of solving that issue as long as we could. Monday night, a counsel for American Bankers called us and said, "You know, for $400 million we can make this go away." We had a board meeting Tuesday morning and looking at our options we believe that's in the best interest of our shareholders, and we agreed to pay a breakup fee -- $400 million pretax, and end the transaction.
     DOBBS: A devastating -- your P&L and your balance sheet. Teamsters, the fund managers, some of them saying that you don't own enough stock. They want you to buy stock. Any plans to do so?
     SILVERMAN: Yes, I've announced I'm acquiring 1.5 million shares of stock, which I am doing by actually exercising and keeping options, which I own, rather than exercising and selling options. I'm actually going to exercise and hold the stock. So I will own 1.5 million shares very shortly.
     DOBBS: What has this done to you? You have been as well tutored by the best in the business over the course of the last several decades. Your tremendous experience -- people are utterly shocked that Henry Silverman could have missed the irregularities in the deal with CUC. Does that -- do you still wrestle with that, or do you have it fairly well figured out?
     SILVERMAN: Only a thousand or two thousand times a day. The problem, Lou, is what I've learned from this, among other things, is our financial system is based on trust. It's like a national study hall where there's one proctor who is probably underpaid and overworked.
     Therefore, we really have to rely upon really the honor system, if you will. I think you have a right to rely upon certified financial statements by a Big Five accounting firm. And I think you have a right to rely upon representations of management. Our system is very vulnerable to fraud because it is based on trust. We can't do a forensic audit of every potential business partner or do polygraphs of every management we happen to do business with.
     DOBBS: At least until after the fact. Bringing back shareholder value. You've announced a billion-dollar buyback. What else are you going to do to restore value for shareholders of Cendant?
     SILVERMAN: Well, we've really changed the strategic direction of the company 180 degrees. We're fortunate, we're blessed with great businesses and wonderful management. And in spite of the trauma of the last six months, our businesses have grown more than 30 percent on the bottom line, on an apples to apples basis.
     We are going to sell all the non-core businesses that we own. We're going to use the proceeds to buy back stock. That's a strategic direction, just the opposite of our former strategy, which was to be a seller of shares and a buyer of companies. Now we'll become buyer of our own shares and a seller of our own companies.
     DOBBS: And in terms of the SEC, the U.S. attorney, how onerous will those investigating be going forward?
     SILVERMAN: Well, the fortunate thing is the investigations do not involving anybody who is currently an employee of Cendant Corp. They are investigating activities by people who no longer work for us. Therefore, it should be a really minimal distraction to the current company, its management and its board.
     DOBBS: And in terms of a more independent board, any plans to make that adjustment?
     SILVERMAN: Well, we have mostly independent directors on our board. And the old HFS never had any governance issues at all. No one complained when HFS went from $4 to $76 in five years, or we compounded earnings at 64 percent a year, for six years.
     So we will add directors as appropriate, independent directors. But basically, our board is made up of very independent people who are very much aware of their duties. I don't think that we have any issues with the current board the way it's now made up.
     DOBBS: Henry, when do you think this will be behind you?
     SILVERMAN: Well, we went back and looked at the last big accounting issue was Pepsi, which took place in the early '80s. It took Pepsi 18 months to get from point A to point B. And we think it will take us at least that long, Lou.Back to top


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