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Cendant Seeks to Distance Itself From Homestore

California

Probe: Chairman says his company is not involved in investigation of the Internet firm.

September 28, 2002|E. SCOTT RECKARD and THOMAS S. MULLIGAN | TIMES STAFF WRITERS

NEW YORK — The chairman of Cendant Corp, concerned that his company's relationship with Homestore Inc. is dragging down its stock price, told analysts Friday that his company is not a target of the investigation into Homestore's phony-revenue scandal.

Cendant Chairman Henry R. Silverman said there is "absolutely zero basis in reality" for rumors of his company's involvement in the scheme, talk he blamed on short sellers attempting to benefit from declines in Cendant's stock.

"We are not involved in the Homestore investigation," Silverman told analysts during a conference call.

Federal prosecutors and Securities and Exchange Commission attorneys in Los Angeles, who filed criminal and civil charges this week against three former executives of Westlake Village-based Homestore, didn't return calls seeking confirmation of Silverman's statement.

The three former Homestore executives admitted to roles in a 2001 criminal scheme, in which barter deals with other companies were booked by Homestore as genuine advertising revenue. The complaints against the executives refer to a "major media company," which sources say is AOL Time Warner Inc.'s America Online unit, but don't mention a company similar to Cendant.

Cendant, the New York-based franchiser of Century 21, Coldwell Banker, Avis, Ramada and other brands, is the largest shareholder in Homestore, which provides real-estate-related services, information and products online.

Cendant executives didn't return calls seeking comment on the company's relationship with Homestore. AOL spokesman John Buckley said this week that AOL is "confident that our deal with Homestore and our accounting for it was appropriate."

Cendant agreed to sell its Internet real estate site, Move.com, to Homestore two years ago for 26.3 million shares of Homestore stock--a stake whose value soared from $761 million to $998 million on the day of the announcement.

The merger with Move.com, completed in early 2001, created what Homestore's then-Chief Executive Stuart Wolff described as "synergistic opportunities ... as well as increasing financial benefits."

On the day the merger closed, Merrill Lynch analysts Henry Blodget and Kirsten Campbell said, "As the competition falls to the wayside, Homestore continues to plod along, securing its spot as the dominant online real estate player."

Cendant also helped support a fee-based Homestore service that gave sales leads to agents, by paying for subscriptions for 180,000 agents who worked at Cendant franchises--about half of Homestore's subscription base in 2001.

One early crack in Homestore's armor showed up in a Salomon Smith Barney survey of Cendant agents in August of that year, which found that only a third of them would renew the subscriptions if they had to pay for them.

After Homestore disclosed the sham accounting in January and ousted its top executives, its shares, which had closed at a high of $122.25 on Jan. 25, 2000, plunged below $1, erasing more than $9 billion in shareholder equity. Cendant ultimately was forced to write down its entire stake in Homestore. Homestore's shares fell 3 cents Friday to 33 cents in Nasdaq trading.

Cendant shares had climbed to nearly $20 in March before sliding.

The stock tumbled more than 13% this week, closing at $10.75 on Thursday, after the company announced Wednesday that it would take a $175-million charge against third-quarter earnings because falling mortgage rates and unprecedented refinancing activity had eroded the value of its big mortgage-servicing portfolio.

Silverman scheduled the conference call partly in response to that news, saying the market had overreacted. He also said the SEC has not rekindled an earlier inquiry into some of Cendant's financial statements.

Cendant shares rose 25 cents to $11on the New York Stock Exchange on Friday.

*

Mulligan reported from New York, and Reckard from Orange County.

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