Filed by Cendant Corporation
Commission File No. 1-10308
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Galileo International, Inc.
Commission File No. 1-13153
This document is being filed pursuant to Rule 425 under the Securities Act
of 1933 and is deemed filed pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934.
Cendant and Galileo will file a proxy statement/prospectus and other
relevant documents concerning the proposed merger transaction with the SEC.
Investors are urged to read the proxy statement/prospectus when it becomes
available and any other relevant documents filed with the SEC because they
will contain important information on the proposed transaction. You will be
able to obtain the documents filed with the SEC free of charge at the Web
site maintained by the SEC at www.sec.gov. In addition, you may obtain
documents filed with the SEC by Galileo free of charge by requesting them
in writing from Galileo, 9700 West Higgins Road, Suite 400, Rosemont, Ill,
60018 Attention: Investor Relations, or by telephone at (847) 518-4000.
Free copies of Cendant Corporation's filings with the SEC may also be
obtained from Cendant Corporation via its web site at
http://www.cendant.com or by directing a request to Investor Relations,
Cendant Corporation, 9 West 57th Street, New York, NY 10019, telephone:
(212) 413-1845.
Galileo and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from Galileo's stockholders. A
list of the names of those directors and executive officers and
descriptions of their interests in Galileo is contained in Galileo's proxy
statement dated April 3, 2001, which is filed with the SEC. Stockholders
may obtain additional information about the interests of the directors and
executive officers in this transaction by reading the proxy
statement/prospectus when it becomes available.
CENDANT CORPORATION
Galileo Conference Call Script
Henry R. Silverman
Operator: Good day, everyone, and welcome to today's Cendant
Corporation conference call. Today's conference is being recorded.
At this time, for opening remarks and introductions, I 'd like to
turn the conference over to Mr. Sam Levenson, Senior Vice
President of Corporate and Investor Relations. Please go ahead,
sir.
Samuel Levenson: Thank you, _____. Good afternoon, everyone, and
welcome to Cendant's conference call and Webcast.
Before I turn the call over to our Chairman, I would like to
remind everyone of three things. First, the rebroadcast,
reproduction, or retransmission of this conference call and
Webcast without the expressed written consent of Cendant
Corporation is strictly prohibited. Second, if you did not receive
a copy of our press release concerning the Galileo transaction, it
is available on our Web site at www.cendant.com.
Visitors to our Web site can also sign up to be alerted by
e-mail, for new press releases, new SEC filings, or additions to
our calendar of events. The press release may also be obtained by
the company's fax-on-demand system at 877-4-INFO-CD or on the
First Call system. Finally, the company will be making statements
about its future results during this call.
Statements about future results made in this release constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
based on current expectations and the current economic
environment. Each of Cendant and Galileo cautions that these
statements are not guarantees of future performance. Actual
results may differ materially from those expressed or implied in
the forward-looking statements. Important assumptions and other
important factors that could cause actual results to differ
materially from those in the forward-looking statements are
specified in Cendant's Form 10-Q for the quarter ended March 31,
2001 and Galileo's Form 10-K for its year ended December 31, 2000.
References to accretion concerning Cendant in this press release
assume that the Financial Accounting Standards Board's (FASB)
proposed changes in GAAP for goodwill amortization become
effective. In addition, such forward looking statements are based
upon many estimates and are inherently subject to significant
economic and competitive uncertainties and contingencies,
including the uncertainty regarding consummating any possible
acquisition of Galileo International, Inc., many of which are
beyond the control of management of Cendant, Galileo and their
affiliates. Accordingly, actual results may be materially higher
or lower than those projected. The inclusion of such statements
herein should not be regarded as a representation by Cendant,
Galileo or their affiliates that the statements will prove to be
correct.
This press release is being filed pursuant to Rule 425 under the
Securities Act of 1933 and is deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934.
The following conference call is being filed pursuant to Rule 425
under the Securities Act of 1933 and is deemed filed pursuant to
Rule 14a-12 under the Securities Exchange Act of 1934.
And now I would like to turn the call over to Cendant's Chairman,
President, and Chief Executive Officer, Henry Silverman.
Henry Silverman: Thank you, Sam, and good afternoon, everyone.
With me here today, in addition to Sam Levenson, are our Chief
Strategic Officer, Sam Katz; our Chief Financial Officer, Kevin
Sheehan; and Denise Gillen of our Investor Relations department.
I am pleased to announce Cendant's agreement to acquire Galileo
for $33 per share, and that United Airlines, the largest
stockholder of Galileo, with approximately 18% of the outstanding
shares, has entered into an agreement with Cendant to support the
transaction and has provided Cendant with a proxy to vote the
Galileo shares owned by United in favor of the transaction.
I should mention that we expect to complete the transaction in the
fall of 2001 and that the closing is subject to customary
regulatory approval.
I'll describe why we believe this transaction will benefit our
shareholders and those Galileo shareholders who will become
Cendant shareholders.
Galileo is a leading Global Distribution System, or GDS. Galileo's
computerized reservation systems connect 43,000 travel agency
locations worldwide and millions of corporate and individual
customers to 500 airlines, 45,000 hotel properties and hundreds of
car rental companies, tour operators and cruise lines. Galileo is
the largest traditional model GDS in the Middle East and Africa,
the second-largest GDS in North America, the second-largest GDS in
Europe, and the largest GDS in the Asia-Pacific region.
Galileo is an attractive acquisition for Cendant because it meets
our four corporate objectives. First, it significantly expands our
presence in the travel sector, an area of strategic focus for us.
Second, its business model, like ours, is based on recurring
fee-for-service revenues. Third, it leverages a core
competency--our ability to accelerate unit growth by providing
value-added services to current and prospective customers of all
sizes. And, fourth, the acquisition is very accretive to our
earnings and cash flow.
Expanded Travel Presence
With the addition of Galileo, Cendant will have a comprehensive
travel platform, generating transaction fees on all major
components of travel spending, including the largest component,
air travel. We'll have a much larger footprint within the global
travel industry and generate more of our revenues and profits from
faster-growing international travel markets. International air
traffic has grown at nearly double the rate of domestic air
traffic over the last five years. In addition, the acquisition
will diversify Cendant's travel revenues geographically without
adding any currency risk, since over 60% of Galileo's revenues
come from outside the U.S. but are paid in U.S. dollars.
We'll be able to capitalize on the growth in online travel
bookings by combining Cendant's travel portal strategy with
Galileo's software development capabilities and URL, TRIP.com. And
we will bring additional volume to Galileo through Cendant's
existing membership travel businesses. All of this not only makes
Galileo an excellent strategic fit with Cendant today; it also
positions us to pursue additional growth opportunities in the
consolidating travel industry.
Complementary Business Model
Galileo's business model is highly complementary to Cendant's
fee-for-service template. When a consumer books a trip through a
travel agent, her corporate travel department, or on the Web, she
accesses the information through a GDS and makes an airline, car
rental, or hotel reservation. The GDS is paid a flat fee,
typically about $4 per booking by the travel supplier such as
Ramada, United Airlines or Avis. Galileo serves as the bridge
between travel providers and travel agencies, corporate travel
departments and consumers. In the process, it earns a modest fee
on approximately 350 million B2B2C transactions totaling $80
billion dollars of travel purchases. Obviously, this model is very
similar to Cendant's.
Building on Core Competencies
We also know that Galileo's relationships with travel agencies are
structured as long-term contracts and provide predictable and
recurring revenue streams. That also sounds a lot like Cendant to
us. One of Cendant's core competencies is unit growth of customer
systems by providing value-added services to businesses of all
sizes over an extended period of time. We do this every day with
hotel owners, timeshare developers, real estate brokers, tax
preparation franchisees, community banks and credit unions. With
Galileo, we can enhance its current commitments to work with
travel agencies and their corporate clients by establishing and
enhancing mutually beneficial relationships.
For example, Cendant will offer our proprietary Preferred Alliance
services to Galileo's existing 43,000 travel agency customers.
Galileo will also have access to the customer relationships forged
by Cendant's sales force of more than 700 persons who currently
sell car rental, fleet management, mortgage and relocation
services directly to the Fortune 1000. Now Cendant's sales force
can offer travel services with our agency partners as well.
Highly Accretive Transaction
With Galileo operating squarely in the very center of the travel
sector, emulating our fee-for-service business model and building
on our core competencies, we certainly view the acquisition as
strategic. Let's talk about its financial impact.
The acquisition is immediately accretive to our earnings and cash
flow, adding $0.10 to $0.14 cents per share to earnings and $350
to $400 million to cash flow in 2002. The exact results will
depend upon the number of shares issued, the closing date of the
acquisition and the timing of achieving certain synergies we've
identified. Included in the projected accretion is about $70
million to $80 million of merger synergies in 2002, primarily from
the utilization of Galileo's GDS by Cendant's travel agencies and
Web sites, the reduction of certain duplicative information
technology spending and lower general and administrative expenses.
The synergies are expected to grow to over $100 million in 2003.
Having said all that, we are not naive about the challenges to the
GDS industry generally and to Galileo specifically. I want to
assure you, as I assured our Board, that our due diligence process
in this transaction was our most intense ever. We conducted a "no
stones unturned" due diligence investigation and utilized numerous
strategic, industry and technology consultants, our auditors,
legal counsel and bankers, as well as over 40 people in eleven
distinct disciplines within Cendant operating management. Keep in
mind that Galileo operates in the travel distribution space, a
core competency area for Cendant where our combined management
expertise or "domain knowledge" represents several hundred years
of experience. It's worth spending a few minutes on our findings.
1. Traditional model GDS's maintain vast IT infrastructures, capable
of processing huge transaction volumes--almost [one million per
day or one thousand every minute] in Galileo's case--reliably and
economically, in spite of their core technology having been in
existence for many years. We believe it is unlikely that new
competitors entering the travel distribution space would attempt
to duplicate the current infrastructure of traditional model
GDS's. As in many of our businesses, we are aware of the risk of
disintermediation. However, we believe that the demonstrated
success of the traditional GDS's ensures that GDS companies will
play an important role in the growing Internet travel space--if
they can supply technology and distribution services that are
reliable and cost-effective. For example, Travelocity and Expedia
are both powered by a traditional model GDS.
2. Like our real estate business, where FSBO's (for sale by owners),
have historically represented 20 percent of all home sales, a
similar percentage of consumers have historically gone and will
continue to go directly to the supplier. As a major supplier of
travel services, we see that every day. Interestingly, telephone
bookings are down each year as on-line bookings increase. Consumer
direct is clearly preferred by the suppliers, who are looking to
reduce distribution costs, but consumers still want a choice--not
just American's flights to Chicago, for example, and the GDS can
offer that. And consumers typically want one stop shopping versus
visiting multiple sites or calling multiple vendors to book each
component of their trip, which again GDS's can offer.
3. As a supplier, we see the clear trend to more on-line
agencies--like our travel portal. The competitive position of each
GDS over time will be driven by its skill in serving the on-line
segment. This is much more relevant in the U.S., than in the rest
of the world, where on-line travel planning is just beginning to
take off primarily through the Web sites of traditional agencies
and suppliers. Galileo is not a leader in the online space, and we
need to change that--we think our experience and our investments
in building our travel Web sites and travel portal give us a
competitive leg up. We think our development and subsequent sale
of Move.com to Homestore.com for more than 10x our investment
demonstrate this skill set.
4. Galileo has lost momentum in the U.S. due to a sales force
transition in 1999 and the Internet challenge I just mentioned.
Fortunately, the U.S. sales force issue--whereby Galileo had no
sales force for almost 14 months--is behind Galileo, and we think
we can address the Internet issue. Unit growth and a more focused
competitor characterizes every business we have purchased since
the inception of HFS in 1990.
5. We believe a bigger piece of a bigger pie--and the travel pie is
growing bigger for the reasons I discussed a few minutes ago--will
offset any decline in margins over time. We are keenly aware of
the focus of suppliers on lowering their distribution costs--a
trend that has been ongoing for several years. The GDS industry is
positioned to partner with suppliers to address this issue. The
GDS fee per round trip airline ticket is less than $10, compared
to a ticket cost of hundreds or even thousands of dollars. Our
focus will be to add value to both our suppliers and agency
customers to ensure the success of both in maximizing their
profits. For example, greater use of direct connections from
suppliers to the corporate customers of our travel agency partners
can provide Galileo the same margin opportunity because these
connections have lower costs associated with them. Even the
supplier direct channel is an opportunity as evidenced by Galileo
powering the very successful United.com site.
6. By utilizing our capital, we can also facilitate the expansion of
our travel agency customers who are participating in a
consolidating industry, and who can convert acquired agencies to
Galileo's GDS. This is exactly the model we have used in our other
businesses, particularly real estate through NRT, and may provide
similar cash on cash returns. Remember, the suppliers, not the
agencies, pay the GDS, which allows us to realize very attractive
returns without an undue financial burden on the agency
consolidator.
To summarize our findings, we think there are clearly challenges,
but challenges also represent opportunities. We believe many of
these issues are company-specific, not industry-specific. Perhaps
proof of this is that the market is valuing Galileo at less than
half the multiple of Amadeus or that of Sabre excluding
Travelocity.
As we said in our press release, in the spirit of maintaining the
highest levels of service to Galileo's customers, during the
period prior to closing both Companies will be working together to
assure a seamless integration of Galileo into Cendant. We do not
anticipate changes in Galileo's operational management or a
reduction in the employee base that would impact service to
customers.
However, as we also stated in the release, we are going to bring
in a new CEO, similar to when we brought Bob Pittman into Century
21 to change the paradigm of that company, who together with a
number of current Cendant managers will augment the Galileo senior
management. We have a long history of revitalizing companies and
we're confident we can do it again.
I'm sure you recall the old HFS formula: First, buy a business
perceived as under-performing. In year one we take the costs out
and begin the unit growth that provides a revenue spike in year
two. By year three, we're growing off a much higher base,
augmented by tuck-in acquisitions added to this strategic
platform. A few examples are Century 21, RCI, Avis and PHH. Our
annual cash on cash returns from these transactions today is in
excess of 30%. Within a few years, we believe the travel services
space, including Galileo, can provide similar results. Remember,
the upside here is not what Galileo brings to Cendant, but what
Cendant can bring to the table to accelerate Galileo's revenues
and profits.
With that, we would be happy to take your questions.
Operator: This concludes today's conference call. We thank you for
joining us. You may now disconnect.
END