Realogy announces acquisition agreement with equity firm

An affiliate of private equity firm Apollo Management L.P. has entered into an agreement to acquire real estate brokerage giant Realogy — formerly the real estate arm of Cendant Corp. — in a deal valued at about $9 billion.

The proposed transaction, which was approved unanimously by a special committee of the company’s board of directors, includes the assumption or repayment of about $1.6 billion of net indebtedness, and legacy contingent and other liabilities of about $750 million, according to the announcement.

The transaction is subject to a vote of the holders of a majority of the outstanding shares of Realogy, to antitrust and insurance approvals, and to other customary closing conditions, the company reported. Realogy and Apollo expect to consummate the transaction in spring 2007.

Several private equity firms were interested in a takeover of the company, the New York Times had earlier reported, and analysts had reportedly said that the company’s buy-back of about 20 percent of its shares “may be a prelude to an acquisition by a private equity firm.”

Realogy owns and franchises such major real estate brands as Century 21, Coldwell Banker, ERA and Sotheby’s International Realty.

Realogy stockholders would receive $30 per share in cash at closing, representing a premium of 18 percent over Friday’s market closing price of $25.50 and a premium of 26 percent over Realogy’s average closing share price since its spin-off from Cendant on Aug. 1, the company reported.

Realogy traces its roots through hotel franchisor HFS, which embarked on a buying spree of massive real estate brands from 1995-97. In 1995 HFS acquired Century 21, and quickly followed that purchase with the acquisition of ERA, PHH and Coldwell Banker. Cendant was formed through a merger of HFS Inc. and CUC International Inc., a direct marketing and member services company, in December 1997.

Cendant Corp. this year has carried out a plan to spin off and sell off several business units. Since spinning off Realogy as an independent, publicly traded company, its stock performance had been lackluster as the U.S. housing market has been in the midst of a slowdown. Company chairman and CEO Henry R. Silverman had earlier said that he expected company officials to keep their options open in planning for the future of Realogy.

Upon the closing of the transaction with the private equity firm, shares of Realogy common stock would no longer be listed on the New York Stock Exchange.

Founded in 1990, Apollo has invested over $16 billion in companies representing a range of industries in the United States and internationally. The company is now investing its sixth private equity fund, Apollo Investment Fund VI L.P., which along with related co-investment entities represents about $12 billion of committed capital.

Under the terms of the agreement, Realogy can consider alternative proposals from other companies until Feb. 14, 2007, “and intends to consider any such proposals through its special committee and with the assistance of its independent advisors,” the company reported.

If the company does accept another company’s proposal, Realogy would owe a “break-up” fee to Apollo. Apollo has reportedly secured commitments from JPMorgan, Credit Suisse and Bear Stearns to provide the debt financing for the cash transaction with Realogy and has committed to provide $2 billion of equity to complete the transaction.

Based in Parsippany, N.J., Realogy has about 15,000 employees and 320,000 brokers and sales associates in the world. It’s brokers and agents represent about a quarter of the membership of the National Association of Realtors trade group.

NRT Inc., a Realogy company that oversees company-owned real estate offices, acquired 31 companies last year and has acquired about 320 companies since its creation. NRT has about 1,000 offices and 64,000 sales associates and operates in about 35 major metropolitan markets across the country.

“After careful consideration, our board of directors has concluded that this transaction is in the best interests of Realogy and our stockholders,” Silverman said in a statement. “It will enable stockholders to realize the value of Realogy’s fundamentally strong businesses. At the same time, the valuation takes into account the substantial pressures and uncertainties facing the residential real estate markets that may well continue for some time. Realogy will benefit from ownership by an investor committed to building further on the solid foundation provided by the company’s leading market positions and to developing long-term opportunities for growth.”

Marc Becker, a partner at Apollo, said in a statement, “Realogy’s powerful real estate brands and their long heritage of leadership in the industry serve as a strong platform for future growth and we are pleased to again have it as part of our investment portfolio. We are committed to working with Realogy’s talented senior management team and dedicated employees to invest in the business and position it for long-term growth and success.”

Realogy vice chairman and president Richard A. Smith stated, “We are excited about the opportunity to grow our company in partnership with Apollo. Apollo’s interest in our company is a clear recognition of the attractiveness of Realogy, our businesses and the success we have achieved. Apollo has a strong track record of growing businesses. Under its ownership, Realogy’s strong and highly competitive franchising, brokerage, relocation and title services businesses will be able to continue moving forward, executing our current business plans and developing new opportunities for growth.”

Silverman is expected to continue to serve as chairman and CEO until the Dec. 31, 2007, expiration of his employment agreement, according to the announcement, “at which time it is expected that he will be succeeded as CEO by Mr. Smith.”

Silverman and Realogy “have agreed that he will not be an equity participant with Apollo in the acquisition, and will receive the same per share consideration for his shares and in-the-money options as other stockholders and option-holders under the merger agreement,” according to the announcement. “As with all other option-holders, all of Mr. Silverman’s out-of-the-money options will be cancelled. No discussions have been held with other members of senior management regarding management participation in the transaction, but it is anticipated that the senior management team will remain with the company following the transaction’s closing.”

The total transaction value represents a multiple of about 11 times the midpoint of the company’s previously released 2006 EBITDA (earnings before interest, taxes, depreciation and amortization) guidance before restructuring and spin-off-related costs, and approximately 12 times the consensus Wall Street estimate of 2007 company EBITDA.

While the transaction does not require the consent of any bondholders, Realogy reported that “substantially all of the company’s floating rate senior notes due 2009 … will be either assumed or repaid,” and a small percentage of notes due in 2011 and 2016 will also be paid as a part of the deal.

“In the event that Realogy’s credit rating falls below investment grade and a change of control has occurred, the company would be required to offer to repurchase these Notes at 100 percent of face value following the closing,” according to the announcement.

Realogy has received a legal opinion stating that the transaction with Apollo will not impact the tax-free nature of the company’s split from Cendant Corp.

Evercore Partners served as financial advisor to Realogy in connection with the acquisition, and Skadden, Arps, Slate, Meagher & Flom provided legal services. JPMorgan and Credit Suisse served as financial advisors to Apollo, and Wachtell, Lipton, Rosen & Katz provided legal services, according to the announcement. JPMorgan, Credit Suisse and Bear Stearns are providing Apollo with debt financing.

In connection with the proposed transaction, Realogy intends to file a statement with the U.S. Securities and Exchange Commission, the company announced, and the company advises that investors and security holders read this statement.