Cendant`s purchase of Galileo makes sense for both companies

Cendant`s acquisition of Galileo, announced Monday, marks a strengthening of Cendant’s commitment to its existing investments in the travel industry as well as an attractive deal for Galileo’s shareholders; Cendant’s purchase price of $2.9 billion in cash and stock at $33 per share was more than 10% above Galileo’s closing price of $29.80 a share Friday.
The purchase is typical of Cendant, an opportunistic company always on the lookout for ways to enhance its core products of travel and real estate, according to Flo Lugli, president of WizCom, the Cendant company that provides switching services for hotel, car rental and tour companies. In March, Cendant bought what shares of Avis Group Holdings, Inc. it did not already own. It also has 6,000 hotels operating under the brands of AmeriHost Inn, Days Inn, Howard Johnson, Ramada and Super 9. The company looks to acquire suppliers or, as in Galileo’s case, companies that provide services within one of those two verticals, Lugli said.
“[The Galileo acquisition] enables Cendant to get into the air space in a way that we’re comfortable with,” Lugli said. Cendant will generate transaction fees from air travel, the largest component of travel spending. Galileo also diversifies Cendant’s travel revenue base geographically, and expands Cendant’s customer base for cross-marketing purchases (e.g., Cendant can market its Preferred Alliance services, which offer discount pricing on various business services, to Galileo agencies).
Lugli described Galileo as a healthy, growing business despite “dire predictions” of the fate of its main constituency, travel agencies. Galileo has done little to expand into the online leisure market, and its booking engine is used by only a handful of sites, such as Trip.com, which it owns.
WizCom and Galileo have had a lengthy and beneficial relationship, and the deal should bring new operating efficiencies to both parties, Lugli said. For example, WizCom customers will be able to realize operating efficiencies with data networks and communications.
“That should enable us to continue to be able to provide cost-effective solutions for our customers well into the future and clearly demonstrates Cendant’s commitment to the WizCom space—travel technology and distribution,” she said.
Lugli added it was too early to speculate on whether or not Galileo, under Cendant, would experiment with its pricing for suppliers.
“Certainly, operating as a separate business unit, Galileo will have to continue to grow. Cendant’s objective is to take what we think is a very strong business and make it even stronger by combining some of the cultural, philosophical and management strengths that Cendant can bring to the table. Whether that relates to different pricing or different value components, it’s probably too early to tell,” Lugli said.
Commenting on the fact that Cendant will be a non-airline supplier owing a GDS and therefore not subject to anti-bias regulations that airlines are subject to, Lugli said that it didn’t make sense for Cendant to spend $2.9 billion on an internal distribution system. Managing competing companies is something Cendant already does with its hotel and real estate brands. She pointed out that Cendant provides the central reservations system for Budget Rent a Car, an Avis competitor.
“We have the requisite infrastructure that includes all the required confidentiality and security that we need to perform our business across all our business units,” Lugli said. She added that she has talked in person with most of WizCom’s customers and the overwhelming response to the purchase has been positive.