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Friday, July 21, 2006

Digging Down Into Cendant, Realogy, Wyndham

Stock Tickers: CD, H, WYN

This spin-off and break-up of Cendant (CD) has been a complicated transaction and has not been without pain. Cendant is spinning off companies on a "when issued basis" for Realogy under the ticker "H," and Wyndham Worldwide under the ticker "WYN." Both will be listed on the NYSE. These have been trading already.

REALOGY
Realogy Corporation is launching as a standalone publicly traded company, and while it is the most complicated of the spin-offs it is likely the largest problem area for Cendant to date. Once Cendant gets rid of Realogy (H), this will get rid of the garbage. Realogy has been hurting this company because the only people who haven't figured out that the real estate market is in shambles are the coma patients. Wyndam (WYM) was also restructured in a way that was almost too deleveraged, but that is another story for next week or beyond. This new company will be formed from the previously announced spin-off of the Real Estate Services Division from Cendant Corporation. Realogy will be comprised of four complementary businesses and subgroups:
* A global real estate franchisor of industry-leading brands
-Century 21®
-Coldwell Banker®
-Coldwell Banker Commercial®
-ERA®
-Sotheby's International Realty®
* NRT, the largest U.S. residential real estate brokerage company
* Cartus, the world's premier employee relocation company
* Title Resource Group, a U.S. provider of title, escrow and settlement services

WYNDHAM
Wyndham (WYN-WI) is of course the international operator of global hotels and vacation properties. As stated earlier, Wyndam (WYM) was also restructured in a way that was almost too deleveraged. There is still a lot of homework to do on this name now with such a deleveraged balance sheet, so that will be another story for next week or beyond.

SPIN-OFF TIMELINES
The shares of the two companies will be formally issued on July 31 to CD shareholders of record on July 21. Cendant will hold onto its Travelport and Avis/Budget Group businesses for the time being, but recall that Travelport was entered into a sale to the Blackstone private equity firm on June 30 for about $4.3 Billion and Cendant is using some of the proceeds to reduce the debt in Realogy and Wyndham. So the plot thickens. The Avis/Budget rental car businesses are pretty easy to identify but the Travelport consists of the Galileo system that links 52,000 travel agencies to airlines, hotels, cars, tours, cruises, etc; it consists of Orbitz for online travel searches for Joe Q. public; and it includes GTA for wholesaling travel and hotel accomodations.

Cendant expects to record an accrual of up to $30 million for back taxes and interest in its second-quarter results. The company said it has not forecast earnings per share for the second quarter or full year because of its upcoming transformation. Finding someone that can do this without luck is also proving to be more than guesswork, and that has been causing harm to the shares. Investors are still having to take it on faith that they will do allright without being able to evaluate just what they are getting.

ADDITIONAL OVERHANG
One of the silent killers for Cendant is actually the Index Fund crowd. They have been lihtening up on their weighting in Cendant (CD) because the company will itself be much smaller after this is all said and done. They have also unfortunately had to do some guesswork as far as how much to sell and over what time period. That has also brought the technician (chartists) out of the closets as well because this chart looks ugly as it has broken down.

The options traders have also been scratching their heads as to what they are receiving and what the impacted stock prices will be.

It does not mean that shareholders don't know how many shares they will be receiving, but the valuation of each is still an unknown and most of Joe Q. Public (and many in the "smart money crowd" too) has an incredibly hard time dealing with "When Issued" shares until the formal shares are listed. This is partly due to discrepancies on various trading systems being able to recognize the actual stock tickers, and it is partly because these situations are just not that common.

This "sum of the parts" should still actually net out a greater sum to investors that have the stomach and fortitude for speculative and hidden value situations, but this has not come without pain. It takes patience and fortitude to stomach this, particularly when the trend is not your friend.

SO WHO GETS WHAT?
As previously announced, shares of Realogy and Wyndham Worldwide will be issued at the close of business on July 31 to shareholders of record of Cendant on July 21. "Regular way" trading in the common stock of Realogy, Wyndham Worldwide and Cendant is expected to commence on August 1st. So be mindful that if you go out and buy the stock now, it is TOO LATE to get these when-issued spin-off shares.

The distribution breaks down to 1 share of Wyndham common stock for every 5 shares of Cendant common stock and 1 share of Realogy common stock for every 4 shares of Cendant common stock. So if you own 1000 shares of Cendant as of those prior dates, you will end up holding an additional 200 shares of Wyndham (WYN) and an additional 250 shares of Realogy (H).

Jon C. Ogg
July 21, 2006
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