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Fixing a troubled company
November 20, 1998: 7:31 p.m. ET

Cendant CEO sees light at end of tunnel, says no unit save two is 'sacred cow'
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NEW YORK (CNNfn) - The stock price of franchiser Cendant was decimated this year by news of alleged accounting irregularities at its former CUC International unit. Shares in the company fell from a 52-week high of almost 42 all the way down to a low of 6-1/2. The stock (CD) closed Friday at 15.
     As a result, Cendant has been taking steps to boost its credibility, its cash levels, and its share price. On Friday Cendant announced plans to sell its consumer software division to Havas of France, for about $1 billion.
     The company's chairman and chief executive, Henry Silverman, spoke with CNNfn's "Street Sweep" about Cendant's efforts to repair itself and regain public confidence. He also shared his less than optimistic predictions on where the economy and the market are heading in the next year.
     Following are highlights from that discussion:
     DONALD VAN DE MARK, CNNfn: Nice to have you here. You have turned the corner? The company is well on its way to recovery?
     HENRY SILVERMAN, Cendant: I think so. I think we're seeing the end of the tunnel. It's been a very arduous and difficult tunnel, as you know, this summer, but we're starting to get to the right place, yes.
     TERRY KEENAN, CNNfn: And Henry, you alerted us to the fact that you would now be a seller rather than a buyer and with this big deal, you've set that in motion. Do you plan more big asset sales down the road?
     SILVERMAN: Well, Terry, when I was on with you and Lou in October, we said that we had a planned disposition program and that we were going to implement that. We are executing that strategy right now. We announced the sale of our classified magazine publisher; that will close in December. This is the second phase. This (software) transaction will close the end of January. There are other dispositions that are of smaller companies that are also being considered.
     In terms of our larger units, we have basically said that our franchising businesses and our real estate value circle will never be sold; that every other business will have to prove to our board and to me over the next year or so that they're worth more to us than they are to some strategic acquirer based on their growth rates, and so we really have taken a position. No cow is sacred other than those that I've articulated for you.
     VAN DE MARK:: The stock is still down from its 52-week high of above $40 a share, but it has made a nice move up again today. You still have legal costs and legal issues and shareholder lawsuits hanging over your head. How much do you think you may have to spend to dispose of all that?
     SILVERMAN: Well, I think there's three questions there. Clearly, (there is) a significant valuation issue for our stock as well as for our debt. As you may know, we have credit ratios that are probably A-Plus, and yet our debt is rated average of DDD-Plus. So it's in both the credit and equity markets. We're probably going to spend another $5 to $10, maybe even $15 million next year on legal fees, defending against what have now been consolidated into two suits -- one by the common shareholders who lost money owning CUC and then Cendant's stock, and then the preferred class as well. As to ultimate outcome, that's not predictable at this point and probably won't be for quite a bit of time in the future.
     KEENAN: I wanted to ask you a broader question. You're, of course, a savvy observer of Wall Street and not only did your fortunes change this year, but the fortunes of the stock market and the capital markets changed dramatically. What's your outlook for the markets going forward?
     SILVERMAN: Well, I think that …we have a lot of free cash flow earnings growing at 20 percent a year, and we're in the process of buying back our stock. But having said that, in terms of the market as a whole, there is still a credit crunch going and it's still difficult to act.
     It's easier than it was a month or so ago, but it's more difficult to access the capital markets than it was, let's say, six months or so ago. Just look at the number of transactions occurring there. The IPO market is still relatively shut down. When companies can't get access to capital they will cut back on capital spending; when that happens there is a trickle-down economy. Generally the next step is that companies don't need as many workers, and consumer confidence starts to ebb a bit, and the economy starts to slow.
     My guess is all those things will occur. We are a great lead indicator in our businesses and we are seeing not yet a slowdown, but certainly no growth over 1998 in terms of consumer behavior. I would suspect that typically means that you'll see a rally, continuing rally in the bond market and interest rates going lower, and not much headway for stock. … It's inconceivable to me that corporate America will grow their earnings by 19 percent. We are the largest outsourcer in two areas, vehicle management and real estate relocation. We deal with the Fortune 100 companies and I can tell you they are not expanding their opportunities going into 1999.
     VAN DE MARK: Well, there is an economic indicator from someone who's on the front lines. We appreciate it. Henry Silverman, chairman and CEO of Cendant, and a man who is selling off part of his company for a billion bucks. Back to top


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