CUC International

CUC International, originally known as Comp-U-Card, was a United States consumer-services company founded in 1973 by Kirk Shelton and Walter Forbes. It built its business around membership clubs that offered consumers discounts, shopping services, travel benefits, automobile services, dining and home-improvement offers, and other products through recurring-fee programs. The company was headquartered in Stamford, Connecticut, and eventually served tens of millions of customers in the United States and other markets. CUC began with a telephone-based mail-order and drop-shipment shopping model. Its Comp-U-Card service connected members with merchandise before the widespread adoption of the public Internet. During the 1980s, the company extended its interactive-shopping proposition through online services including The Source and, later, CompuServe. Its Shoppers Advantage service also appeared on America Online, Prodigy, GEnie and Delphi. CUC launched a web-based service in 1995, making it an early participant in electronic commerce, although its principal business remained membership clubs rather than a conventional online retailer. The company experienced financial difficulties during its early years, but outside investment and a 1983 public offering provided capital for expansion. It subsequently developed a portfolio of membership programs, including Shopper’s Advantage, AutoVantage, Traveler’s Advantage and Comp-U-Card. CUC also pursued distribution and marketing relationships with major communications, retail and entertainment companies. By the early 1990s, its clubs reportedly reached more than 30 million customers. CUC shifted toward large-scale acquisitions in the mid-1990s. In 1996 it acquired Sierra On-Line and Davidson & Associates in stock transactions valued at approximately $1.06 billion and $1.14 billion, respectively. The purchases brought software publishing and distribution capabilities into the group and gave CUC access to new consumer demographics. Davidson owned Blizzard Entertainment, while Sierra was known for personal-computer games and interactive software. In December 1997, CUC merged with HFS Incorporated. The combined company was named Cendant Corporation and retained parts of CUC’s direct-marketing, membership and software operations while adding HFS businesses in hotel franchising, car rental, travel and timeshare exchange. The merger created a much larger services conglomerate, but its launch was quickly overshadowed by the discovery of accounting fraud at the former CUC business. In April 1998, Cendant disclosed that CUC had overstated income by more than $500 million over several years. Investigators concluded that membership revenue had been improperly recorded and cancellations had been withheld from reported results. The disclosure caused a severe collapse in the company’s share price, triggered Securities and Exchange Commission enforcement action and led to extensive shareholder litigation. Former CUC executives Walter Forbes and Kirk Shelton were prosecuted; Shelton was convicted in 2005 and Forbes was convicted after a retrial in 2006. Cendant sold the software division later in 1998 and progressively reorganized or divested businesses associated with the former CUC portfolio. CUC International therefore no longer exists as an independent company, although successor businesses continued in areas such as membership marketing and consumer services.

CUC International began in 1973 as Comp-U-Card, a membership shopping service founded by Kirk Shelton and Walter Forbes. Its initial model used telephone ordering and drop shipment to provide members with access to merchandise. This approach allowed the company to operate as an intermediary between consumers and suppliers without building a conventional retail-store network. The business struggled during its early years. By 1979 it was reportedly losing more than $2 million annually, and by 1983 accumulated losses were described as approaching $14 million. The company nevertheless attracted investment from organizations including Reader’s Digest and Eckerd Drugs. After licensing its interactive-shopping concept in Europe, CUC went public in the United States in 1983 through a Morgan Stanley-led offering that raised approximately $20 million. During the 1980s and early 1990s, CUC expanded its membership-club portfolio and distribution relationships. Shopper’s Advantage, AutoVantage and Traveler’s Advantage complemented the original Comp-U-Card service. CUC made its shopping proposition available through early online and proprietary information services, including The Source, CompuServe, America Online, Prodigy, GEnie and Delphi. The company’s interactive-shopping model was developed before Amazon and other mass-market Internet retailers, and CUC placed a web-based service online in 1995. CUC also sought growth through partnerships and acquisitions. Its customer base grew to more than 30 million members during the early 1990s. In 1996 the company made its first major acquisitions, buying Sierra On-Line and Davidson & Associates in stock transactions. The acquisitions expanded CUC into consumer software publishing and distribution and brought businesses associated with Blizzard Entertainment into the corporate group. CUC merged with HFS Incorporated in December 1997. The resulting corporation, Cendant, combined CUC’s membership-marketing and software operations with HFS businesses in lodging franchising, car rentals, travel agencies and timeshare exchange. The Federal Trade Commission required divestiture of one timeshare-exchange business because the combination was considered to have created excessive concentration in that market. The new corporation’s first year was dominated by the discovery of accounting fraud at CUC. On April 15, 1998, Cendant announced the problem; the following day the disclosure became public. More than $500 million in income reported for earlier periods was found to be fictitious or improperly recognized. The methods included overstating membership sales and delaying recognition of cancellations. The alleged purpose was to inflate earnings and the share price, supporting the use of stock in acquisitions and helping conceal underlying losses. Cendant’s share price fell sharply after the disclosure, and the company faced regulatory proceedings and shareholder claims. The Securities and Exchange Commission pursued civil charges against Forbes and Shelton. Several former finance employees, including chief financial officer Cosmo Corigliano, comptroller Anne Pember and accountant Casper Sabatino, pleaded guilty in 2000. Shelton was convicted in 2005, while Forbes was convicted after a retrial and sentenced in January 2007. Cendant ultimately paid billions of dollars in settlements and restitution-related obligations, although the former CUC business itself was no longer operating independently. The scandal prompted Cendant to dispose of or reorganize businesses inherited from CUC. The software unit was sold to Havas in November 1998. Membership and loyalty operations were later placed under a long-term outsourcing and licensing arrangement with Trilegiant, and Cendant subsequently sold its marketing-services division to Apollo Global Management in 2005; the business became associated with Affinion Group. Cendant announced a four-way separation in October 2005, creating Realogy, Travelport, Wyndham Worldwide and Avis Budget Group. These later successor transactions mark the practical end of CUC International as a standalone corporate brand.

• 1998

  Accounting fraud is disclosed

  [1]CUC Internationalen.wikipedia.org

  Cendant reveals that the former CUC business overstated income by more than $500 million, triggering a major corporate scandal and restructuring.

• 1997

  Merger with HFS creates Cendant

  [1]CUC Internationalen.wikipedia.org

  CUC combines with HFS Incorporated, ending CUC’s independent corporate identity and creating Cendant Corporation.

• 1996

  Sierra On-Line and Davidson & Associates acquired

  [1]CUC Internationalen.wikipedia.org

  CUC expands into software publishing by acquiring Sierra On-Line and Davidson & Associates in stock transactions.

• 1995

  Web-based shopping service launches

  [1]CUC Internationalen.wikipedia.org

  CUC places a web-based version of its shopping service online, extending a membership model that had previously operated through telephone and proprietary online systems.

• 1983

  CUC goes public

  [1]CUC Internationalen.wikipedia.org

  Following outside investment and European licensing activity, CUC completes a United States public offering that raises approximately $20 million.

• 1980

  Expansion into early online services

  [1]CUC Internationalen.wikipedia.org

  CUC makes its interactive-shopping services available through early online platforms, including The Source and later CompuServe and other consumer networks.

• 1973

  Comp-U-Card is founded

  [1]CUC Internationalen.wikipedia.org

  Kirk Shelton and Walter Forbes establish a telephone-based membership shopping and drop-shipment business that becomes CUC International.

CUC positioned itself as a broad consumer-membership platform offering convenience, discounts and specialized services through recurring-fee clubs. Its early telephone, interactive-television and online-shopping concepts emphasized access to curated merchandise and services before mass-market e-commerce became established.

• Membership shopping service · 1973

  Comp-U-Card

  CUC’s original membership shopping service began as a telephone-based drop-shipment program in 1973. It gave members access to merchandise through an intermediary purchasing and fulfillment model and later expanded into proprietary online networks and web-based commerce.

• Shopping membership club

  Shopper’s Advantage

  Shopper’s Advantage was one of CUC’s principal recurring-fee shopping clubs. It offered members access to discounted or specially marketed merchandise through mail-order and electronic channels, including major consumer online services.

• Automobile membership service

  AutoVantage

  AutoVantage was CUC’s automobile-focused membership program. It formed part of the company’s broader strategy of selling specialized consumer clubs that bundled discounts, assistance or purchasing benefits for defined household needs.

• Travel membership service

  Traveler’s Advantage

  Traveler’s Advantage extended CUC’s club model into travel. The service was marketed as a recurring membership offering for travel-related savings and benefits and contributed to CUC’s diversification beyond merchandise shopping.

• Computer software and games · 1996

  Sierra On-Line

  Sierra On-Line became part of CUC through the 1996 acquisition of the software publisher. Its games and educational or entertainment software gave CUC a substantial consumer-software distribution business before the unit was sold to Havas after the Cendant accounting crisis.

• Computer software and games · 1996

  Davidson & Associates and Blizzard Entertainment

  CUC acquired Davidson & Associates in 1996, bringing its software operations and Blizzard Entertainment into the group. The assets were later included in Cendant’s software publishing division, which was sold to Havas in 1998.

• 1998

  CUC accounting fraud and the Cendant disclosure

  In April 1998, Cendant disclosed that CUC had fraudulently overstated income by more than $500 million for prior periods. Investigators found that membership revenue had been overstated and cancellation information withheld, allowing reported earnings to be manipulated. The disclosure caused a dramatic fall in Cendant’s share price, generated SEC enforcement proceedings and led to substantial shareholder settlements. Former executives Kirk Shelton and Walter Forbes were later convicted of fraud-related offenses.

  Source

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• 1998

  Restructure and divest non-core businessesStrategy

  Background

  Following the accounting disclosure, Cendant needed to separate the former CUC operations from the broader group and restore confidence.

  Action taken

  Cendant sold its software publishing unit to Havas and reorganized other membership and marketing operations.

  Aftermath

  The software assets became Havas Interactive, while later membership-services transactions moved parts of the business into Trilegiant and subsequently Affinion Group.

  Potential cash consideration for software division. Up to $1 billion (1998)

  Source

• 1997

  Merge with HFS IncorporatedM&A

  Background

  CUC pursued a combination that would broaden its consumer-services base with HFS businesses in lodging, travel, car rental and timeshare exchange.

  Action taken

  CUC merged with HFS and adopted the new corporate identity Cendant Corporation.

  Aftermath

  CUC ceased to operate as an independent company. The combined group soon faced the disclosure of accounting fraud originating in the CUC business.

  Source

• 1996

  Acquire Sierra On-Line and Davidson & AssociatesM&A

  Background

  CUC sought to expand from membership marketing into interactive entertainment and software distribution while using its larger consumer platform to reach new audiences.

  Action taken

  CUC acquired Sierra On-Line and Davidson & Associates through stock transactions.

  Aftermath

  The acquisitions added major software labels, including Blizzard Entertainment, but the combined software division was sold to Havas in 1998 after the accounting scandal.

  Transaction value. Approximately $1.06 billion for Sierra On-Line and $1.14 billion for Davidson & Associates (1996)

  Source

• 1998

  Cendant sells its software publishing division to Havas[1]CUC Internationalen.wikipedia.org

  M&A

  Cendant sold the unit containing Sierra On-Line, Davidson & Associates, Blizzard Entertainment and related labels to Havas in November 1998, following the accounting scandal and the company’s restructuring of non-core operations.

• 1997

  CUC International merges with HFS Incorporated to create Cendant[1]CUC Internationalen.wikipedia.org

  M&A

  The December 1997 merger combined CUC’s consumer-membership and software activities with HFS’s hotel, travel, car-rental and timeshare businesses. The new company adopted the name Cendant Corporation.

1. 1CUC Internationalen.wikipedia.org