| History of Cendant, Fairfield, and Wyndham |
| Greedy? | Self Dealing? | Breach of Duty? | Conflict of Interest? |
|
The True History of Cendant, Fairfield, and Wyndham (by a day-trader and FairShare Plus owner) Ever wonder how your Fairfield or Trendwest timeshare became a Wyndham timeshare? Ever wonder what happened to Cendant? What happened to Fairfield? And what about the rumours of executives
going to jail? Wonder no more, here are
the answers. In 1997, two major companies merged to form Cendant, Hospitality
Franchise Services (HFS) and Comp-U-Card (CUC).
Henry Silverman was the CEO of HFS, a major hotel and real estate
franchiser. Walter Forbes was the CEO of
CUC, a direct marketing giant. Silverman
saw this merger as an opportunity to expand the HFS brands through CUC’s existing
marketing structure. They agreed to
share leadership of the new company, Cendant; however, Silverman had made his
millions and was stepping into retirement. When Silverman was trying to quietly step down,
the merged stock prices were soaring, until April 1998, when former HFS
executives discovered CUC had previously overstated their financial condition
prior to the merger. Stocks plummeted $14
billion in one day as shareholders jumped ship amidst the largest accounting
scandal in Wall History (Enron and Worldcom would not happen until three years
later). The SEC immediately opened up an
investigation of Cendant. Silverman demanded
Forbes to cede management of Cendant to him, Forbes refused, and eventually
Cendant nearly went belly up. Silverman cancelled his retirement and jumped back into the fire to try
and restore his great reputation. I don’t
recall when Forbes was out of the picture, but it was sometime around 1999 or
2000 when he was charged by the SEC with misrepresenting company profits, corporate
embezzlement and generally ripping off shareholders. Forbes and his CUC executives spent five plus
years on trial. In 2005, Forbes’ second-in-charge,
Kirk Shelton, was convicted to 10 years in jail. (A humorous side-note is that Shelton was
ordered to make financial restitution to Cendant, to the tune of $3.3 billion,
payable at the rate of $2000 per month. That works out to be a payment schedule
of 134,000 years! What a joke.) Finally, after eight years of trial, in
October 2006, Forbes was convicted and sentenced to up to 25 years in
jail. Most of the other CUC executives went
down with Forbes and Shelton, but provided testimony for immunity and/or were
released on technicalities. Seemingly,
all of these crooks were off Cendant’s payroll before Fairfield entered the
picture. Incidentally, Silverman was
found guilty only of NOT doing his homework prior to choosing business partners. So Silverman was left with Cendant (and his life’s work at HFS) in a
shambles. After coming out of
retirement, he made great strides to rebuild his personal reputation and save
Cendant. One of his first steps was to
have his lawyers contact the plaintiffs of every pending lawsuit and immediately
settle all of them – to the sum of several billion dollars. They dumped some brands to fund this and Silverman
pitched in personally as well. He worked
hard to restore his reputation, but kept the name Cendant in place until his
departure in 2006. Believe me, as a full-time
day-trader since 1985, I did a lot of research in desperate hopes of finding dirt
on this guy and his companies. I couldn’t
find any. In fact, I found Silverman to
be so clean that I sought out and purchased a Fairfield timeshare after Cendant’s
acquisition of Fairfield (coming up). Silverman
actually seemed to be one of the most honest true capitalists I’ve ever
researched. I must admit I’m a bit
thankful that he made me a few dollars during Cendant’s climb back up into Wall
Street fame. The way this history affects us as FairShare Plus or Worldmark owners is
Silverman created Cendant Timeshare Resort Group (CTRG), a new Cendant division
geared at taking full advantage of their direct-marketing resources already in
place and applying them to the vacation ownership market. CTRG was headed up by Silverman’s former CFO
at HFS, Stephen Holmes. (Keep in mind that
Stephen Holmes worked for The Blackstone Group prior to working at HFS.) In January
2001, Cendant purchased Fairfield Communities, Inc., the developer of Fairfield
Resorts and management company for the FairShare Vacation Owners Association (VOA),
for $635 million. Then, in April 2002,
Cendant purchased Trendwest Resorts, Inc., the developer and management company
for WorldMark The Club, for $927 million.
By 2004, everything was
going smoothly for Cendant and its subsidiaries; Fairfield and Trendwest. Just about everyone was happy and enjoying
the relationship. Silverman had regained
the confidence of shareholders and built Cendant into the single largest
hospitality/travel name in the industry, now a conglomerate with $20 billion in
annual revenues. So, Silverman was once
again content and decided to try to retire again. In October 2005, Silverman announced a
decision to split Cendant into four separate companies. We will focus on the hospitality brands,
which were coupled with CTRG to be spun-off in mid-2006 as Wyndham Worldwide,
Inc. Now, you might be wondering
how Cendant decided to spin off a company called Wyndham? Let’s start with some quick history about the
name “Wyndham”. Wyndham International,
Inc., was an upscale and luxury hotel brand based out of Dallas, TX. They owned 34 hotels, 82 franchise
agreements, and had 29 hotel management contracts. In August 2005, Wyndham International sold
everything to Blackstone Group (a massive private investment firm that is
famous for huge leveraged-buyouts and mergers) for $3.2 billion. (Don’t forget, I already mentioned Stephen
Holmes used to work for Blackstone.) Within
three months, Blackstone rebranded half of the most luxurious of the Wyndham
hotels under their own brand, LXR Luxury Resorts; sold the remaining properties
to Columbia Sussex Corp for $1.4 billion; and sold the brand name “Wyndham”,
the franchise agreements, and management contracts to Cendant for $100 million.
So, the only thing Cendant purchased was
the leftover management contracts and the name, “Wyndham”. This was a perfect opportunity to get rid of
three names that were blackened in the industry; Cendant, Fairfield, and
Trendwest, and replace them with a name everyone already associated with luxury
travel accommodations. Purchasing the coveted Wyndham
name for just $100 million and burying the stigmatized names was a great idea
by Silverman, but he made a mistake by putting Stephen Holmes in to lead this
effort. Holmes rebranded
everything. CTRG became Wyndham Vacation
Ownership (WVO); Fairfield Communities (which had already been renamed
Fairfield Vacation Resorts) became Wyndham Vacation Resorts (WVR), and
Trendwest became Wyndham Resort Development (WRD). They even tried to change the names of a few
cities (Fairfield Bay and Glade), but the post office and residents didn’t like
that, so they compromised by adding “by Wyndham” to the end. Everything became something-Wyndham (even the
soap) and they were successful at confusing not only the public and taxi-cab
drivers, but even half of the employees. You can still read a press-release on their
own website where they can’t figure out which Wyndham they are referring to. Since 2006, with the spin
off and absence of Silverman’s leadership, I personally think everything started
to go downhill (at increasing velocity). I only follow the demise of WYN stock out of
mild interest, not as an investor anymore.
Actually, I do have a limit option to buy when they drop to $1.50 per
share. Theire stock has simply never recovered
from the split and all of the Wyndham Worldwide brands are now suffering. The hotel-side of business was not diversified. They had enjoyed a long-time reliance on
associations with businesses; hosting conferences, conventions, and discounting
for business travel relationships. Holmes
clearly failed to do what CEOs are paid to do; predict the impact of the gas
crisis and economic downfall and shift their business strategies to remain
competitive. He was behind the power
curve and sought rescue from the only Wyndham Worldwide subsidiary that was
still in the black; WVO, with its two primary brands, WVR (FairShare) and WVD
(Worldmark), led by Franz Hanning. Franz Hanning started with
Fairfield in 1982 as a dreaded timeshare salesman. He worked his way up to become the sales
manager at Kingsgate within five years. Often
credited today as the “founder” or “brain-child” behind the FairShare Plus
points program, it is curious to wonder how he could do that when he was still
only a sales manager when the FairShare Program was fielded in early 1991. In
1992, Hanning was promoted to vice president of sales for Williamsburg and Myrtle
Beach. In 1997, he became the overall vice
president of sales for Fairfield. Within
two years he became the Chief Operating Officer (COO), second-in-charge to Randolph
Warner, the founder and CEO of Fairfield Communities. When Cendant bought
Fairfield Communities in 2001, Warner decided to retire. He made a deal with Cendant to promote Hanning
to CEO of Fairfield Communities during the acquisition. So Hanning took over as CEO of Fairfield
Communities in 2001, as a subsidiary of Cendant. After the spin off, Hanning took over as CEO
of WVO, in charge of development and management of both WVR (FairShare) and WVD
(Worldmark). Back to Holmes and the mounting
financial troubles facing Wyndham Worldwide.
Following the spin off in 2006, Hanning had done a decent job of keeping
WVO in the black. Right from the start,
WVO started to make changes to the existing programs of each of their brands
(including FairShare Plus and Worldmark), taking away benefits, and funneling
inventory over to external Wyndham Worldwide programs, including Wyndham
Hotels, Extra Holidays, Endless Vacations, and RCI (there are others, but this mentions
a few). This was all done without the
permission of existing timeshare owners by using clauses built into the
ownership contracts to control the Board of Directors and make decisions on “behalf
of all owners” without any owner input. What a great concept. In fact, they were successful at abusing this
relationship for a few years, but Holmes forced Hanning to dig even deeper. With the recent changes in ownership benefits
for both brands, owners are finally taking up arms against this corporate
breach of duty and conflict of interest. If you currently own WYN
stock, GET OUT! GET OUT while you still
can. Within a year their stock will be
under $2.00. Perhaps that will be a good
wake-up call for Holmes and Hanning. In
fact, what Wyndham Worldwide could really use now is another visit from Henry
Silverman. His integrity, insight and
leadership have been sorely missed by the shareholders and executives; and now
even the owners realize that his “retirement” has been a great loss. P.S. I don’t want to leave anyone
hanging on the fate of Cendant’s founder, Henry Silverman. He took his meagre $62 million severance package
when Cendant did their split in 2006 and took over as CEO in the much
slower-paced, and less controversial, spin off company, Realogy, Inc. Of course he’s doing well, but it turns out he’s
always secretly been a Kid Rock fan. He
took Kid Rock’s song, “She’s Half Your Age and Twice as Hot” a bit too
seriously for a guy without a prenup. In November 2008, Silverman decided to dump
his wife of over 30 years for a 28 year old girl he met in line at Starbucks. Looks like he 68 year-old Silverman won’t be
retiring anytime soon if Mrs. Silverman (ex) gets what she’s trying to get from
him! |
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