Divide and Prosper

Divide and prosper
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Tuesday, November 8, 2005

By KEVIN G. DeMARRAIS
STAFF WRITER



Last week, Cendant Corp. announced that it was reversing its longtime strategy of diversification by dividing the travel and real estate services company into four separate public companies: hospitality, travel service, real estate and car rentals.

All but travel services, which will be based in Manhattan, will be based in Parsippany.

Hospitality services, which will include Cendant's hotel and time-share operations, will be headed by Stephen Holmes, Cendant's vice chairman and a longtime associate of Henry Silverman, founder and chief executive of a predecessor company, HFS Inc.

The Record sat down with Holmes at corporate headquarters to look at how the company came to this point; how it has emerged from massive fraud perpetrated by executives of CUC International, the company with which it merged to form Cendant; and where the still unnamed stand-alone hospitality division is headed.

Q. You've been with Henry Silverman and HFS from the start. How do you feel about leaving him and beginning this new venture?

It's very exciting, but it's a little bittersweet. We've spent the last 15 years building this company, first as HFS and now as Cendant. It's a phenomenally strong business, great brands in real estate and travel. Now we're disassembling them.

Having said that, I'm very, very excited about the group that I'm going to be with in the future, the hospitality group. It's something I've been involved with since Day One, and was probably part of the driving force to bring timeshare into Cendant.

When we started HFS, I was the CFO, so most of the deals that were done ... before we merged with CUC were deals I was involved in. It is a little bittersweet to see them go.

But for this to work for the shareholders, the best thing to do is to align the businesses as we've aligned them.

Q. What did you learn from him?

To focus on what's important. Henry is a master at keeping the focus where it needs to be to successful ... on our customers and our employees. Along the way, we have to make sure that our shareholders and bondholders are kept in the front of our minds.

No. 2, and it probably should be No. 1, is his incredible integrity, incredible honesty. We lived through the darkest of times when we merged with a company and found fraud. Henry didn't hesitate for a heartbeat to raise his hand and say we have a problem, as difficult as that was for us to do.

Q. What's going to be different?

By being in one industry, you can be very focused. I think that will give greater intensity to the effort of this public company toward that industry, and it will give more clarity to the shareholders.

They will know exactly what we stand for. We are a hospitality business in hotel and timeshare, just like Marriott, Hilton, Starwood and other big players.

Q. Much of Cendant's growth was through acquisition. Is that part of your strategy?

I don't think our model has changed at |all. We're very disciplined. We didn't go chasing Wyndham at too high a price. We waited until the situation was right to be able to buy |it.

Will we be doing deals in the future? Absolutely. I think we'll be looking at them. We'll be extremely disciplined as we we've been in the hotel group in deciding when was the right time to buy Wyndham.

We had been looking at that biz for seven years.

Q. How does hospitality compare with the time-share group?

The time-share business is the larger piece of the hospitality business, about 60 percent. Time share is growing at a compound rate of about 15 percent over the last 10 or 15 years. It's the fastest growing segment of the hospitality industry.

You've probably heard of some of the big players, Marriott and Hilton, are in it, but we actually have more members in our clubs than anyone else.

Q. The industry has received negative publicity because of high-pressure sales. Is that a problem?

It's an old problem that isn't a prevalent as it used to be. Most of the big players in the marketplace right now are quality operations, like ourselves, Disney, Marriott, Four Season, Ritz-Carlton. When companies like Marriott or Disney got into it, they really changed the way the product is sold; they changed the perception.

What you're referring to is the old land sales back in the Seventies, land that didn't exist or swampland in Florida. That was more of the early cowboys in the industry.

Q. What plans do you have to grow the business?

We're constantly adding new product. We're building somewhere in the neighborhood of $400 [million] to $500 million worth of product every year. We're building in Las Vegas, we just converted a product in Atlantic City from long-term condominium to time share. We just bought a development out in the Poconos within the last several months ...

We built this business by first buying Fairfield Resorts ... We could buy other businesses down the road. We're not afraid to look at opportunities.

E-mail: demarrais@northjersey.com

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