Travel services giant Cendant has announced plans to split into four separate companies. Each will take control of a portion of the vast Cendant empire, including the Orbitz travel Web site, the Ramada and Howard Johnson hotel chains, and the Budget rental car company.
The Cendant name, repeatedly dogged by investigation and criticism, will be retired.
In a statement, Cendant's CEO, Henry Silverman, criticized Wall Street for "not fully recognizing" the potential of the company, and predicted that splitting the corporation into four "pure-play" divisions would be the best way to improve its global profile.
Spinning off divisions that have become cumbersome, unprofitable, or controversial is nothing new to Cendant. The company has a long history of divesting itself of subsidiaries and simply renaming them, or calling them "partners" instead.
Cendant had previously spun off or publicly traded several businesses that were not "good fits" with its travel-centered mission, including tax services firm Jackson Hewitt, another frequent target of consumer complaints.
Trilegiant
Cendant's most infamous partner was the Trilegiant "marketing services" and "loyalty" division. Trilegiant's legions of subsidiary companies, including PrivacyGuard, AutoAdvantage, and GreatFun, have been the source of many ConsumerAffairs.com complaints relating to unauthorized charges for products and services, often obtained without the buyer's knowledge or consent.
Trilegiant has been sued by several state attorney generals for deceptive marketing practices, enabling its many affiliates to entice customers to sign up for expensive memberships without their consent.
Trilegiant was sold to investment firm Apollo International in July of 2005.
CUC International
Trilegiant was a renamed version of CUC International, another Cendant "predecessor" company that became embroiled in a historic securities fraud scandal.
Cendant's former vice-chairman, E. Kirk Shelton, used the potential profits from the sales of memberships to unwitting customers to drive up the stock price of the company, falsely inflating the company's value. The resultant fraud cost Cendant $14 billion in a single day in 1998, when the scheme was revealed.
In the words of one former Cendant employee, "Once they realized banks, credit unions and oil companies would be willing to market these services directly to their card holders, and charge a fee, the easy money became too easy."
"Before you know it, card holders were getting charged without knowing and CUC began to project the future/trial membership fees as profit, thus bogusly inflating company value, and the rest is pre-Enron history," he said.
Shelton was found guilty of securities fraud and conspiracy in August 2005. He was sentenced to ten years in federal prison, and ordered to pay Cendant $3.27 billion in legal fees and restitution for shareholder litigation settlements.
Don't shed too many tears for poor Cendant, however. The Trilegiant sale netted the company a cool $1 billion in pretax dollars, and the profits from the Cendant split will be tax-free for the company and shareholders.
