Cendant Corp., the franchiser and direct marketer struggling to recover from accounting fraud, called off yesterday its $219 million acquisition of Providian Auto Home and Insurance Co., a subsidiary of Baltimore's Aegon USA.
Cendant also filed a lawsuit against the company.
The Parsippany, N.J., company said Providian's financial health worsened after Cendant agreed to acquire the insurer for cash in December.
In a statement, Cendant said "several representations and covenants in the acquisition agreement had not been fulfilled and the conditions to closing had not been met."
The termination date for the agreement was Sept. 30. Cendant )) did not ask for an extension because Providian "no longer met [its] acquisition criteria," the statement said.
Aegon USA, a subsidiary of Dutch insurer Aegon NV, also released a statement that said: "We believe it is Cendant that has breached the agreement. Cendant's recent problems, which are a matter of public record, speak for themselves. At this time we cannot comment any further pending our evaluation of our remedies."
Aegon USA spokeswoman Rosemary Kostmayer would not comment on the lawsuit or if Cendant owes the company a break-up fee.
Aegon USA, which operates Monumental Life Insurance Co. and Monumental General Insurance Group, acquired the auto and home insurance business in June 1997 when it bought the insurance operations of Louisville, Ky.-based Providian Corp. for $3.5 billion.
Cendant's shares fell $1.25 yesterday, closing at $9.50.
American Depositary Receipts of Aegon closed down $1.94, at $73, on the New York Stock Exchange.
Rob J. Nicoski, analyst with Piper Jaffray in Minneapolis, said he is not surprised that Cendant aborted the deal with Providian.
"Cendant is still working through a lot of troubles, and they are trying to restore investor confidence," Nicoski said.
"They are probably trying to eliminate some of the potential distractions," he said. "This gives them one less business they would have to integrate."
Lewis H. Alton, of L. H. Alton and Co., a San Francisco research company, said he's certain Cendant could have pulled off the deal if it chose to, despite its stock trading at a fifth of its value earlier in the year.
"Providian did not pose that large of an acquisition. Cendant could have handled it," Alton said. "Instead, both companies will have a huge legal battle on their hands."
In April, Cendant disclosed accounting flaws in one of its divisions that offers discount shopping, travel and other services for a fee.
Cendant was formed in December by the merger of HFS Inc., a Parsippany-based brand franchiser, and the Stamford, Conn.-based CUC International Inc., which runs membership businesses.
Shortly thereafter, Cendant announced that "accounting irregularities" in CUC's books would force it to restate earnings.
Cendant owns brands such as Howard Johnson hotels and Avis car rentals, and it has acquired the former PHH Corp. in Hunt Valley and the O'Conor, Piper & Flynn-ERA real estate agency in Timonium.