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Cendant, Galileo in talks
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June 7, 2001: 2:26 p.m. ET
Hotel franchiser said to value travel reservation firm at $3 billion
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NEW YORK (CNNfn) - Cendant Corp., the world's largest travel and hotel franchiser, said Thursday it is in takeover discussions with electronic travel-reservations service Galileo International.
Terms of the possible transaction were not announced and there was no assurance a transaction will be consummated. However, a strategic acquisition of Rosemont, Ill.-based Galileo (GLC: up $0.54 to $30.04, Research, Estimates) could materially add to Cendant's earnings per share in 2002, the companies said in a joint release.
Neither Cendant nor Galileo plans to make further announcements regarding the transaction.
New York-based Cendant (CD: down $0.30 to $18.18, Research, Estimates) plans to pay $3 billion in cash and stock, press reports said. Galileo provides computerized travel reservation services, such as Trip.com, where consumers can book hotel rooms, airlines and car rental.
Cendant is offering $34 as share for each share of Galileo, more than double the stock's price in October, when Galileo said it was considering sale of the company, the Wall Street Journal said.
"From Cendant's point of view, this is very consistent with their business strategy of acquiring travel service and real-estate service related businesses," Jay Leupp, analyst with Robertson Stephens, told CNNfn's Money Gang.
Leupp said a price of $33 or $34 per share would make the acquisition accretive for Cendant as well as strategic. (537K WAV or 537K AIFF)
Cendant, which franchises Ramada Inn, Howard Johnson and other hotels and owns Avis Group car rental, has been seeking acquisitions recently, the Journal said. In March, the company bought the 82 percent it did not already own of Avis Group Holdings Inc. for about $935 million.
Leupp said a reservation system would be very complimentary to Cendant's nine hotel brands and 500,000 hotel rooms, but the company's policy has been to run the businesses for stand-alone profit, so it is unlikely it would exclude other hotel brands from Galileo.
"It seems to me it would not make sense to run Galileo solely for Cendant's internal brands ... but to serve other brands, not unlike the reservation systems that were once owned by the airlines," he said.
Last month, Cendant announced it would spin off its membership and loyalty business to shareholders by this fall, after the company agreed to pay $2.83 billion to settle a class action lawsuit stemming from accounting fraud at its former CUC unit.
Separately, the Journal said Orbitz, the online travel service owned by the nation's five largest airlines and which opened for business Monday with promises of lower prices, was plagued by problems in its first days of service.
"The deluge of customers really has exceeded our expectations," the paper quoted Roland Jacobs, Orbitz's chief marketing officer, as saying. Jacobs said Orbitz was understaffed to meet the high volume, causing service delays. 
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