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. Last Updated: 07/27/2016

Cendant Offers $2.83Bln to End Suit




NEW YORK -- Cendant Corp., the marketing and franchising company battered by accounting problems last year, has agreed to pay $2.83 billion to settle a shareholder lawsuit accusing it of fraud.


The settlement, if approved by a New Jersey federal judge, would end one of the largest shareholder suits in U.S. history.


Cendant, whose brands include Days Inn and Ramada hotels, the Avis car rental agency and real-estate brokerage Century 21, saw its stock price plummet last year after announcing the accounting irregularities, which forced the company to restate earnings from 1995 to the middle of 1998.


Cendant said CUC International, which merged with HFS Inc. to create Cendant in 1997, had used irregular accounting practices to inflate earnings by as much as $500 million over the previous three years. The scandal prompted the resignation of several former CUC executives, and caused Cendant's market value to plummet by $14 billion in a single session last April.


In June 1998, the accounting woes prompted a class-action suit filed by two major pension funds - the California Public Employees' Retirement System and the New York State Common Retirement Fund - on behalf of all shareholders. The plaintiffs accused Cendant of issuing false and misleading statements and allowing former company directors and officers to sell Cendant shares prior to the disclosures of the accounting problems.


The settlement guarantees cash reimbursement for all shareholders who bought stock in Cendant or CUC between May 31, 1995, and Aug. 28, 1998. It also requires Cendant to adopt a number of changes in the way it governs itself, including setting up an audit board comprised entirely of independent directors rather than company officials.


"This is a victory for the more than 1 million New York State retirees and other Cendant shareholders who were defrauded by the company's misleading financial reports and senior executives' inappropriate actions," said Carl McCall, New York state's comptroller.


"Equally important," McCall said, "Cendant has agreed to make changes in its operations that should, in the long term, strengthen the company's stock value."


Boosting market value is crucial to Cendant, whose stock dropped from a peak of $41.68 3/4 before the accounting woes were disclosed to below $20.


On Tuesday shares rose $1.18 3/4 to $18.37 1/2 on the New York Stock Exchange in heavy trading.


Henry Silverman, Cendant's chairman, president and chief executive officer, said the settlement should cut the company's last ties to the former CUC and allow it to rebuild.


"By eliminating what was by far our largest remaining uncertainty, the settlement effectively brings closure to this most unfortunate event," Silverman said.


The fallout from Cendant's accounting woes is far from complete. To pay for the settlement, the company will take an after-tax charge of $1.8 billion, or $2.39 per share, in the fourth quarter.


Because Cendant expects a judge to approve the settlement near the end of the first quarter of 2000, the deal will also cut into next year's earnings, reducing profits for the fiscal year by 12 cents to 16 cents per share.