Henry Silverman is one of those big deal-makers who move billions of dollars, control top brands–Avis, Century 21, Ramada, Coldwell Banker–and are virtually unknown outside Wall Street. Silverman perfected his craft in the ’80s under master mentors such as Saul Steinberg. In the early ’90s, he created Hospitality Franchise Systems and cleverly capitalized on a nifty thing about big-name franchising operations: they produce lots of cash, without lots of bother about mundane things like assets. Using that cash and his own soaring stock as currency, Silverman could swoop up half a dozen companies in a year. If critics challenged the solidity of his empire, he and his delirious investors had no time for questions. In 1997, he and Forbes, founder of direct marketer CUC, merged to create Cendant. Silverman was even more popular.
Until last April. That’s when Cendant revealed that there were major “irregularities” at CUC, and the stock lost $14 billion in value in one day. NEWSWEEK has learned that Cendant executives immediately demanded Forbes’s resignation. When he refused, both sides kept a united public front for some weeks. But by mid-July, internal investigations had doubled the estimated losses, to more than half of CUC’s earnings. Silverman had lost more than $1 billion in stock options. Forbes was also hit hard. And the battle between the two men had broken into view.
At 10 a.m. last Tuesday, Silverman and Forbes entered a room at the law firm of Skadden, Arps, Slate, Meagher & Flom along with 26 board members and a dozen lawyers. They listened as accountants described the fraud–“fictitious” revenues stretching back to 1995–in “nauseating detail,” says Silverman. The auditors didn’t level blame at Forbes. But when the group emerged after 4 p.m., Forbes and his allies had resigned. Silverman had prevailed.
The official verdicts aren’t yet in. Cendant auditors will soon make a final report. Probes by federal authorities will take longer. And Cendant will be fighting endless investor lawsuits. Silverman and Forbes now have just one task in common: each to restore his credibility.
Forbes will have to protect his Cendant fortune while defending his conduct at CUC. He spent hours last week holed up with his accountant, trying to answer new questions from auditors about his own expense accounts. Forbes wouldn’t talk to NEWSWEEK, but he has maintained that he knew nothing of the CUC fraud. He resigned only to end the management battle, says spokeswoman Nicole Reilly. “We wish the [Feds] would hurry up” and vindicate him. The expense-account questions, she adds, are a red herring. That leaves Forbes with the classic question: how could this happen on your watch? Reilly won’t answer that one. But a CUC insider says Forbes’s only mistake was to think that he and Silverman could run Cendant together. Forbes now believes that Silverman wanted him out “from day one,” looked for and was delighted to find an excuse. “Crap,” says Silverman. He sang Forbes’s praises as late as March, he declares.
There’s no suggestion that Silverman knew of the fraud. But the Cendant mess seems inevitable to those who had questioned whether he or his investors could properly evaluate his rapid-fire deals. “The man doesn’t know when to stop,” says fund manager Robert Olstein. “If you keep swinging [so] fast and furious, someplace you don’t do enough due diligence.” Silverman, who dislikes the “deal jockey” image, scoffs at that. “How can you do due diligence when people . . . look you in the eye and lie to you?” Of many brilliant acquisitions, he adds, this is the only troubled one.
Still, Silverman says he will slow his buying, and sell units that don’t fit. As he turned 58 over the weekend, Silverman was doing something else uncharacteristic: second-guessing himself. What could he have done differently? “That’s [what] I ask myself no less than a thousand times every nanosecond,” he says. He’s not the only one who wants to know.
