Cendant Intends to Buy Discount Seller Cheap Tickets for $425 Million

Cendant Corp. added another piece to its growing travel business Monday when it announced it would purchase Cheap Tickets Inc., the discount airline ticket seller, for $425 million in cash.
The deal is Cendant`s second major travel-related acquisition in less than two months. In June the company announced it would acquire Galileo International Inc., a worldwide travel reservations operation, for about $3.3 billion in stock, cash, and debt acquisition.
Both purchases are subject to regulatory approval.
The double deals fit into Cendant`s plans to focus on its travel and real estate businesses. Cendant, whose operations are based in Parsippany, is the owner of the Days Inn, Super 8, Ramada, and Avis travel brands, as well as Century 21, Coldwell Banker, and ERA real estate companies.
“The acquisition of Cheap Tickets supports our strategy of further penetrating the fee-for-service components of the travel industry,” said Henry Silverman, Cendant`s chairman and chief executive. Silverman had promised to “go back on the offensive” after an accounting scandal related to Cendant`s 1997 merger with CUC International Inc. cut its share price 46 percent in a day. The shares, though doubling this year, are still trading at half their price before the scandal emerged in 1998. Cendant was up 42 cents a share Monday, closing at $19.62. Within the past year, Cendant bought time-share resort operator Fairfield Communities Inc. for $690 million and the 82 percent of Avis Group Holdings Inc. it didn`t already own for $935 million.
“Cendant plans to have a portal for all types of travel, including airline, hotels, car rental, and time share,” said Mike Happel, an analyst with Morgan Stanley Dean Witter & Co. The agreement with Cheap Tickets, coming on the heels of the Galileo deal, added to concern among Cendant`s competitors that the company may gain an advantage in setting prices through purchases that give it access to their confidential data. “Any additional vertical-type purchases in the travel reservation business certainly don`t reduce our concerns,” said Richard Broome, vice president of corporate affairs at Ford Motor Co.`s Hertz Corp. unit, the largest rental car company. Two weeks ago European regulators asked Cendant Corp. for more information on its car rental business, delaying approval of the Galileo purchase. Separately, the U.S. Department of Justice reopened its investigation of the deal, a department spokeswoman said.
Cendant`s latest purchase shouldn`t add to industry fears about it gaining too much power over its competitors, because Cheap Tickets markets to consumers while Galileo works with travel agents, said Paul Keung, an analyst with CIBC World Markets.

In terms of the purchase, he said, “the Galileo outcome doesn`t matter.”

Cendant will probably roll Cheap Tickets into Galileo`s Trip.com Internet travel business after the purchases close, Morgan Stanley`s Happel said. The company would compete against Expedia Inc., the No. 2 Internet travel seller, and Sabre Holdings Corp.`s Travelocity.com Inc., the industry leader, Happel said.

Cendant has been working on an Internet-based “travel portal” that would help travelers plan trips using the company`s rental cars, its hotels, and even its time-share properties.

“They may be a consolidator in the online travel industry,” said Happel. “Online travel has been one of the more successful components of the Internet.”

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Honolulu-based Cheap Tickets is a leading seller of discount airline tickets, both on-line and off-line. It said it has more than 3 million visitors on line per month and sells one ticket every 10.5 seconds. For 2001, Cheap Tickets expects its annual gross travel bookings to exceed $800 million.

Cheap Tickets, whose shares traded at about $61 in July 1999, said its second-quarter profit fell 75 percent because of Web site problems and increasing competition as airlines lower their fares.

Cendant is recovering from an accounting fraud concerning inflated revenue at CUC International Inc., a direct marketer that merged with Silverman`s HFS Inc. in 1997 to form Cendant. The fraud, which had been going on for 15 years, led to shareholder lawsuits, which Cendant agreed to settle for $2.85 billion, and federal indictments of senior CUC executives.

Analysts have said Cendant has lost some shareholders who would have rather seen the company buy back stock rather than risking another acquisition that could go wrong. Silverman has said the fraud wouldn`t have been uncovered before the purchase no matter how much due diligence was conducted.

Cendant said it will make a tender offer for all shares of Cheap Tickets common stock within 10 days. The transaction is expected to close this fall, following regulatory review, the company said.

http://www.cendant.com
http://www.cheaptickets.com
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