There is no free lunch here. Cendant expects the price of its stock to fall by the equivalent of the distribution, especially since the deal will basically leave it with little more than its Avis and Budget car rental businesses. The company will then look into a 1-for-10 reverse split, which would prop up the share price tenfold while reducing the number of shares outstanding from roughly a billion to 100 million.
This is all part of Cendant's master plan, in hopes that the sum of its parts prove more valuable than its whole. The same philosophy has provided split fits at Viacom (NYSE:VIA) and Tyco (NYSE:TYC).
Since Cendant is a Motley Fool Inside Value recommendation, a lot of Fools are tuning in to see how this all plays out. Personally, I was hoping for a more dramatic scenario, in which a rich suitor came in and gobbled up either Realogy or Wyndham at a premium. After Cendant completed a spinoff of its PHH (NYSE:PHH) mortgage-management business, it found a buyer for its Travelport subsidiary. With the right amount of polish, an acquisitive-minded real estate juggernaut or hotelier might have been tempted to consume Realogy or Wyndham, respectively.
This will be the beginning of the end for Cendant as we know it, and that's not necessarily a bad thing. Realogy will have just 250 million shares outstanding. Wyndham will be even nimbler, with just 200 million shares out there. Cendant, after a reverse split and a likely name change to Avis Budget Group, will have just 100 million. Investors will be able to cherry-pick the part of the conglomerate that they liked best -- or avoid the part they liked the least.
The plays will be pure, but a little "caveat emptor" is in order here. Each appendage is likely to be more volatile without its fellow subsidiaries around to cushion its ups and downs.
Buckle up, Cendant investors. You have two weeks of calm before things get a little crazy.
Both Cendant and Tyco areInside Valuepicks. Let Philip Durell guide you to more of the market's best bargains with a free 30-day guest pass.
Longtime Fool contributor Rick Munarriz does not own any of the shares in this company, but he may look into some of its parts once the dust settles. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
