Cendant stock up after resignations Silverman takes over from Forbes as chairman

shares rise $1.375

Executive suite

July 30, 1998|By BLOOMBERG NEWS

NEW YORK -- Cendant Corp. shares rose 8 percent yesterday in the wake of the resignations Tuesday of Chairman Walter Forbes and nine board members who bowed to pressure from investors upset about disclosures of accounting fraud.

Shareholders and some of the company's executives had clamored for Forbes' resignation since the direct marketer and franchiser said it would restate earnings for the past three years because of irregular accounting in its CUC International unit. CUC, headed by Forbes, merged with HFS Inc. to form Cendant late last year.

The stock rose $1.375 to $18.375 yesterday in trading of 16.27 million, making it the second-most-active issue on U.S. exchanges, as Henry Silverman, former head of HFS and Cendant's chief executive officer, took over as chairman.

"This should clear up uncertainties at the company," said Scott Pape, a money manager at Loomis, Sayles & Co. in Chicago, which owns about 350,000 shares of Cendant.

Still, Cendant stock is unlikely to return quickly to $40, where it traded before its bookkeeping problems were disclosed, analysts and investors said.

"It will take a couple of quarters for the company to prove that it can provide earnings growth of 25 or 30 percent," said Ron Sit, vice president of Minneapolis-based Sit Investment Associates, which sold all of its 1.3 million shares in July after the fraud was disclosed.

Silverman, 57, said in a statement late Tuesday that the departures mean "we can focus all of our energies on rebuilding confidence in our company and value for Cendant's shareholders." The stock has lost more than half of its value since the accounting irregularities were disclosed in mid-April.

Forbes, 55, said he was unaware of any accounting fraud when it was committed at CUC International, the company he founded. Stamford, Conn.-based CUC, which sells discount shopping and other services to fee-paying members, merged in December with HFS, a Parsippany, N.J.-based franchiser of brands such as Avis car rentals and Howard Johnson,

The company agreed not to sue Forbes unless he is found to have been involved in the fraud.

Cendant also said Tuesday that a probe by Arthur Andersen LLP confirmed its estimate that accounting fraud and errors will lower its 1997 earnings by 22 cents to 28 cents a share from the originally reported $1 a share.

All told, Cendant is going to reduce by more than $300 million its profits reported for 1995 through last year, and this year's profits are also expected to be affected. About 60 percent of the profit CUC reported for 1997 didn't exist, and 90 percent of the shortfall came from phony transactions and other acts of deception, auditors said.

Pub Date: 7/30/98

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