Cendant Corporation and Orbitz, Inc. announced that they have reached a definitive agreement for the acquisition by Cendant of all the shares of Orbitz for $27.50 per share…
Cendant Corporation and Orbitz, Inc. announced that they have reached a definitive agreement for the acquisition by Cendant of all the shares of Orbitz for $27.50 per share in cash. The transaction has a fully diluted equity value of approximately $1.25 billion. Orbitz is debt-free and, as of June 30, 2004, had approximately $200 million of cash on hand. The transaction has been approved by the boards of directors of both companies, but is still subject to regulatory and other approvals.
Cendant to Acquire All Orbitz Shares for $27.50 Per Share in Cash
Company Anticipates Pre-Tax Merger Synergies of Approximately $65 Million in 2005 and $120 Million in 2006 Before Related Costs.
Under the terms of the definitive agreement, a wholly-owned subsidiary of Cendant will commence simultaneous cash tender offers to acquire all Orbitz outstanding Class A and Class B shares at a price of $27.50 per share. Following successful completion of the tender offers, any remaining shares of Orbitz will be acquired in a cash merger at the same price.
“The addition of Orbitz and its outstanding management team to our portfolio of travel distribution businesses immediately places Cendant in a leading competitive position in the domestic on-line travel distribution business. The transaction provides a foundation for significant synergies in technology, fulfillment and operations, which will allow both Orbitz and CheapTickets to continue to aggressively market and promote their respective brands while increasing profitability,” said Samuel L. Katz, chairman and CEO, Cendant Travel Distribution Services Division. “The transaction expands the Travel Distribution Services Division’s distribution capabilities, providing more choices for consumers, suppliers, corporations and travel agents. Our increased scale and relevance, combined with the transaction synergies, will provide considerable benefits to both customers and our shareholders.”
“The Orbitz acquisition fits perfectly with Cendant’s articulated goal to be among the leaders in every business in which we participate,” said Ronald L. Nelson, Cendant’s Chief Financial Officer. “We will use the proceeds from the sale of Jackson Hewitt, a non-core unit, along with additional cash on hand, to acquire a strategic asset with near and long-term growth opportunities. The transaction also meets all of our previously defined acquisition parameters: it is strategic to our Travel Distribution Services Division; it substantially strengthens our competitive position by adding management talent and enhancing our travel technology capabilities; and it is accretive within the first year of the acquisition.”
“This transaction will deliver immediate and substantial value to all Orbitz shareholders,” said Jeffrey Katz, chairman, president and CEO of Orbitz (who is unrelated to Samuel L. Katz). “The attractive premium reflects the quality and success of our unique and profitable approach to online travel. Our employees, customers, partners and suppliers will benefit from the greater resources and opportunities afforded as part of a larger company. And we’re pleased that the consumer-friendly and supplier-friendly aspects of the Orbitz model will go forward due to Cendant’s agreement to continue providing unbiased fare displays on Orbitz.com and to maintain Orbitz Charter Associate and Supplier Link contracts providing low distribution costs.”
Cendant intends to maintain both the Orbitz and CheapTickets businesses as differentiated consumer brands in the leisure travel sector. In the corporate travel sector, customers will be able to choose between Travelport and Orbitz for Business, using the best of what each brand has developed. The integration plans anticipate that CheapTickets and Travelport will combine their technology platforms and operations to form a common platform with Orbitz, based in Chicago.
The transaction is expected to be completed in November. Assuming this completion date, Cendant has estimated the following effects on its future results.
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(a) From expected closing date to year-end.
(b) EBITDA is defined as operating income before depreciation and amortization. This presentation of EBITDA may not be comparable to similarly titled measures used by other companies.
(c) Represents the estimated effect of accelerated depreciation and amortization.
(d) Represents the expected effect of estimated cost savings of the combined operations and greater estimated conversion rates and higher percentage of non-air sales in the CheapTickets business as a result of the migration to the Orbitz platform.
(e) Represents the expected effect of integration activities, Orbitz employee stock options and other related activities.
(f) The estimated operating income will be predominantly reflected in the Travel Distribution Services segment’s future results, but a portion will also benefit Cendant’s other travel-related segments.
(g) Incremental EPS is computed by dividing the estimated diluted weighted average shares of common stock outstanding of 1.073 billion in 2004 and 1.088 billion in 2005 and 2006 into estimated incremental net income resulting from the transaction.
These preliminary estimates are expected to be refined as the management teams at Cendant and Orbitz work together to develop integration plans over the coming months.
Assuming the transaction is completed in the fourth quarter, Cendant anticipates that it will be able to offset the impact of transaction-related expenses and integration charges in the fourth quarter of 2004 with the favorable settlement of certain tax matters currently under review by the IRS. Cendant expects to update its fourth quarter outlook for this matter and other factors when it announces financial results for the third quarter on October 20, 2004.
Citigroup Global Markets, Inc. served as financial advisor to Cendant and Skadden Arps Slate Meagher & Flom LLP acted as its legal advisor. Credit Suisse First Boston LLC served as financial advisor to Orbitz and Latham & Watkins LLP acted as legal advisor to Orbitz. In connection with the Orbitz board of directors’ approval of the transaction, Credit Suisse First Boston rendered an opinion as to the fairness from a financial point of view of the transaction price. The Orbitz board of directors also established a special committee of independent directors to separately evaluate the transaction on behalf of Orbitz Class A (public) shareholders. Merrill Lynch & Co. served as financial advisor to the special committee of the Orbitz board of directors and Winston & Strawn LLP acted as the special committee’s legal advisor. After reviewing the terms of the proposed transaction and receiving an opinion from Merrill Lynch that the $27.50 per share consideration to be received by the public holders of Orbitz Class A common shares is fair from a financial point of view, the special committee recommended that the Orbitz board approve the Cendant transaction. The members of the special committee are Scott D. Miller, Denise K. Fletcher and Marc L. Andreessen.
The consummation of the transaction is subject to certain conditions, including the tender of a specified number of the shares of Orbitz, receipt of regulatory approvals, and other customary conditions. In addition, certain of Orbitz stockholders, including all of its airline stockholders, who collectively own approximately 61 percent of the fully diluted shares outstanding of Orbitz, have agreed to tender their shares to Cendant in the transaction.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
