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Cendant launches auction for travel unit

Cendant on Monday launched an auction for its travel business, as the property and leisure conglomerate attempts to rescue its ill-received plans for a break-up into four separate companies.
/ Source: Financial Times

Cendant on Monday launched an auction for its travel business, as the property and leisure conglomerate attempts to rescue its ill-received plans for a break-up into four separate companies.

The decision to consider selling the unit – which could be worth $4bn and includes the Galileo reservations system and the Orbitz online travel website – comes after several private equity groups said they were interested in acquiring it, people close to the situation said.

The move represents a reversal of strategy for Henry Silverman, Cendant chief executive, who as early as this month appeared to rule out such a possibility because of tax reasons.

"You can't have an arrangement in advance of the break-up to sell something post break-up. If you do, you create a taxable transaction," Mr Silverman said in an interview with the FT earlier this month.

Since October, Mr Silverman has been struggling to fend off investor scepticism of his plans to break up Cendant through a tax-free spin-off to shareholders of each of its four units.

Although Cendant has maintained that it is more valuable in parts than as a whole, the shares have fallen by as much as 10 per cent since the announcement.

The shares were up 3.4 per cent in morning trading on Monday at $17.42, giving Cendant a market capitalisation of $17.6bn.

People familiar with Cendant's plans said that launching an auction for the travel unit was possible because the tax hit on such a sale would be less than it would be for the company's other divisions.

Mr Silverman said that it would not result in a "material tax liability".

In the coming days, Cendant will begin sending out financial information to potential buyers of the travel unit. Investment bankers at JPMorgan, Citigroup and Evercore Partners are advising the company on the process, with JPMorgan and Citigroup also drawing up financing packages for the bidders.

Paul Keung, analyst at CIBC, said that Cendant's travel division could be valued at about 7 or 8 times earnings, before interest, tax, depreciation and amortisation, or some $4bn, if it was sold.

He added that most of the cash generation, which is key to private equity buyers, comes from the Galileo business.

Cendant is scrambling to fix the technology behind its online travel agencies, particularly the UK's Ebookers, after admitting flawed execution of its online strategy.