Cendant/18″/LK1st/mark2nd By SARA FISHER Staff Reporter For almost a year, Torrance-based Cendant Software watched warily as its parent company, Parsippany, N.J.-based Cendant Corp., struggled with massive accounting problems and allegations of fraud. Now, the software firm has a healthier parent the French conglomerate Vivendi SA, which announced it is acquiring Cendant Software for nearly $1 billion. It marks the French company’s debut in the multimedia industry. For Cendant Software, one of L.A.’s largest software firms, the acquisition is expected to strengthen its position in the recreational software industry and leave behind its troubled current owner, which has been hobbled by accounting problems almost since it was created through the merger of CUC International Inc. and HFS Inc. “While we have been financially supported by Cendant over the last year, we expect (Vivendi’s media subsidiary) Havas’ support to be more intense,” said Christopher McLeod, Cendant Software’s president and chief executive. “We also are pleased that we can better enter the European software market though Havas. But for the most part, it’s going to be business as usual from the perspective here in Torrance.” One of the largest and fastest-growing U.S. software companies, Cendant Software makes educational and entertainment software under such brand names as Blizzard Entertainment, Knowledge Adventure and Sierra. It has the largest market share in the computer-game software sector and the second-largest market share for the educational-software sector in the United States, according to market research firm PC Data Inc. The company currently has over 3,000 employees, 1,300 of them in Southern California. Operating through its media subsidiary, Havas, Vivendi will pay Cendant Corp. an initial $800 million for the software division, plus up to $185 million, depending on the software company’s financial performance over the next year. The software division will be renamed, with the new name announced when the deal closes in January. McLeod, who resigned as Cendant’s vice chairman and director in October, will continue to lead the software unit. Other bidders included Microsoft Corp., Walt Disney Co. and Hasbro, according to Vivendi executives, who crowed at a press conference about beating out the “big boys.” Cendant Software executives and analysts alike expect the Torrance software unit to fare well by its acquisition. One expected advantage is greater available financial resources, in part because Havas has made clear its intention of becoming a multimedia powerhouse. Havas also is a healthier company, with deeper pockets than the troubled Cendant. “This sale will certainly benefit Cendant Software,” said Lewis Alton, an analyst for San Francisco-based L.H Alton & Co. “The foreign owner wants to penetrate the global market deeply and knows that Cendant produces top software, so it will likely give more money and more support to the software company to see that happen. Cendant really hasn’t had the available capital to do much recently, not to mention that software was never its core business.” Through Havas, Cendant Software also can expect to see its global sales increase. “More key than additional financing from France is that Cendant will get better distribution in Europe,” said Seema Williams, an analyst with Cambridge, Mass.-based Forrester Research Inc. “The European computer market is poised to explode with personal computers finally penetrating the homes. Cendant now has a stronger entree into that market.” In the short term, the Torrance unit’s activities won’t substantially change. Initially, it will serve primarily as the French company’s sole U.S. outpost. Over time, however, the software company will help launch Havas’ own multimedia efforts and act as its American distributor. Cendant Corp., a marketing and franchising conglomerate that owns such high-profile properties as Howard Johnson and Ramada Inn, put its software division on the block as a means to recover from the fallout over massive accounting problems. Last April, Cendant determined that CUC had posted about $500 million in phony revenue, leading Wall Street to harshly punish what it initially had greeted as a successful merger. The company has since lost roughly 70 percent of its market value, with its stock falling from a high of nearly $40 a share to $6 per share. The sale of the software division which was not involved in the accounting fraud propelled Cendant’s stock up past $20 per share as of last week. Company officials have said that they plan to use the proceeds of the sale to reduce debt and buy back stock.
