Despite Settlement, Cendant Still Faces Common Stock Class Action Suit

Cendant Corp., the firm created from the merger of Parsippany, NJ-based franchiser HFS Inc. and membership package service vendor CUC International Inc., Stamford, CT, has settled one of two class-action lawsuits brought against it. The company has been under fire since April 1998, when it announced that it had found “accounting irregularities” in the earnings statement of CUC. The company reissued its financial statements for the previous three years.

Initially, numerous class action lawsuits had been filed against the company. They were combined into two suits. The settled action involved holders of a type of security called Preferred Redeemable Increased Dividend Equity Securities (Prides), which Cendant issued in early 1998. The security obliged holders to purchase common shares in Cendant at a future date.

Under the original terms of the Prides securities, holders were obliged to purchase Cendant common stock at prices that range from $37 to $48, which are roughly double its current worth. Cendant stock closed on Friday at 19 5/8, down 5/16 from Thursday’s close.

Under the terms of the settlement, Prides holders of record before April 15, 1998 will receive new securities, each worth $11.71 more than those originally issued. The total market value of the settlement is around $350 million.

A second class-action lawsuit, brought by holders of the common stock, is still pending.

Cendant stock, which had traded above $41 right before the announcement, fell to the $20 range when the irregularities were revealed. It has mostly traded between $10-$20 ever since. Several high-level executives were found to have sold blocks of Cendant stock right before the April 15 announcement.