Cendant Corp. last week fired Ernst & Young and is ready to sue the accounting firm for its part in the accounting irregularities uncovered in April in the membership division of the former CUC International. CUC merged with HFS Corp. last year to form Cendant.
Sources told Reuters that Cendant, Parsippany, NJ, may file a lawsuit against Ernst & Young as early as this week for negligence and failure to perform its duties as an independent auditor. Reports of the accounting irregularities caused Cendant stock to fall to $19 from a high of $41. Cendant closed May 20 down 63 cents at $21.75.
In a separate matter, the company re-affirmed its intent to complete a merger with American Bankers Insurance (ABI), Miami, as a two-step process. The first step, involving a 51 percent cash tender offer will be completed after insurance regulatory approval. The second step is subject to the approval of ABI shareholders.
The process can't start until a financial review involving the accounting irregularities is completed sometime this summer.
Cendant also announced that it has reached a definitive agreement with the Royal Automobile Club's board of directors to purchase the RAC Motoring Services division for $730 million.
