Cendant Corp. last week said it is exploring the sale of its Travel Distribution Services division, following unsolicited inquiries from several private equity firms. Cendant chairman and CEO Henry Silverman during the company's first-quarter earnings call last week said that the company still is poised to spin TDS off in October, but in the meantime is exploring the alternative. "We'll either sell TDS or spin it off, and we'll do whatever creates the greatest amount of shareholder value," Silverman said.
Silverman said four factors precipitated the exploration of sale: The company received "unsolicited inquiries" from buyers, TDS could be sold "without significant tax leakage," a sale could "reduce the liabilities and indebtedness" of other units, and lenders indicated that this is an "extremely favorable capital markets environment for this type of transaction."
Cendant enlisted Citigroup, JPMorgan Chase and Evercore as advisors, and JPMorgan Chase and Citigroup "have also indicated they would provide financing to qualified buyers." The TDS division, which Cendant said it will rename Travelport this summer, includes the Galileo global distribution system and the Orbitz online-originating travel agency.
Prior to the announcement, Silverman, a former partner at private equity firm Blackstone Group, which reportedly is among the interested parties, told investors Cendant had no plans to sell the four divisions it planned to spin off—TDS, Realogy Corp., Wyndham Worldwide and Avis Budget Group Inc. He added, however, that after the spin-offs begin in June, each division will be an independent public company and free to evaluate any potential offers it received
(BTN, April 3).Meanwhile, Cendant last month also announced Jeff Clarke, a former senior executive with CA—formerly Computer Associates—and Hewlett-Packard, will join TDS as CEO and president of the division on May 1. Silverman said that Clarke's appointment, coupled with the recent announcement of former Continental Airlines CEO Gordon Bethune as non-executive chairman of TDS
(BTN, April 3), completes the division's management team.
Bethune, who in March was named chairman of TDS, said, "Our decision to join TDS was based upon the opportunity we see in driving growth and value of a highly integrated global travel company. We believe that this can be achieved in either the public or private arena and we are fully supportive of the board's desire to optimize the value for Cendant shareholders."
As airlines and GDSs negotiate content agreements, Continental president Jeff Smisek said his former boss' appointment to a distribution company should help ease what at times have been tenuous relationships.
"Gordon understands very much the need for GDSs to become more competitive and I think he understands that they can functionally no longer act as gatekeepers, but they need to become technology companies." Smisek said. "It's beneficial, not only for Continental, but for somebody who gets it to be in charge of GDSs is a good thing for the industry."
Smisek added: "We at least know how Gordon thinks about distribution costs, we know how he thinks about GDSs and we can use his former quotes against him."
Cendant's president and CFO Ron Nelson told investors last week, "We are entering into agreements that give airlines additional discounts over the next few years. That does reduce margins."
Meanwhile, Bethune said the Travelport name creates a "unifying" brand and allows TDS to leverage Travelport's name recognition. Bethune added that the rebranded Travelport would continue to focus on improving operating systems and employing a more customer-focused approach. The name change is slated to take effect early this summer, once a logo and brand are established, the company said.