HFS TO ADD RELOCATION FIRM IN $1.7 BILLION DEAL.

Byline: Charles V. Bagli The New York Times

HFS Inc. took another step toward becoming a consumer services conglomerate Monday when it announced that it would acquire PHH Corp., the largest corporate relocation business in the country, in a stock deal worth about $1.7 billion.

In addition to the corporate relocation business, PHH, based in Hunt Valley, Md., has a leading mortgage brokerage and a management service that oversees 480,000 fleet vehicles for corporate and government clients.

PHH would be a good strategic match for the rapidly expanding HFS, whose chief executive, Henry R. Silverman, has been on an acquisition binge recently. HFS, formerly known as Hospitality Franchise Systems, is now the largest hotel franchiser in the nation, and owns the Avis rental car agency and Century 21 and other residential real estate operations, analysts said.

HFS plans to pay for the acquisition by issuing about 23.4 million shares of stock in exchange for 34.8 million shares of PHH, in a deal that values the company at about $49.50 a share.

Analysts embraced the deal, saying it would benefit both PHH and HFS for strategic and financial reasons, despite HFS' offer to pay a 61 percent premium on PHH's closing price of $30.75 a share Friday. Shares of PHH shot up $16.75 on Monday, to $47.50; HFS fell $1.25 to $72.875.

``This makes a tremendous amount of sense for HFS because of the way these businesses fit together, the potential cost savings and because of the revenue enhancing opportunities,'' said Michael Mueller, an analyst at Montgomery Securities.

Mueller, like other analysts, said the merger will immediately help HFS' earnings. He raised his estimate for 1997 earnings to $2.55 a share from $2.20.

Company officials expect the acquisition to gain shareholder and regulatory approval and the deal is expected to close early in 1997. Under the agreement, HFS will issue a minimum of 21.3 million shares for PHH and a maximum of 28.7 million, depending on the average HFS share price for a period of 20 trading days that ends five days before PHH shareholders vote. The deal would be accounted for as a pooling of interests and is expected to be tax-free for shareholders.

PHH's chief executive, Robert D. Kunisch, is expected to join the HFS board of directors when the merger is completed.

For Silverman, PHH would be the latest in a half-dozen acquisitions over the past 18 months, totaling $4.1 billion. Silverman began HFS in 1990 to create what has become the world's largest hotel franchiser, with a stable that includes Days Inn, Ramada, Super 8, Knights Inn and Travelodge. As a franchiser, HFS enjoys a steady stream of fees without the associated cost of hard assets.

Last year, however, Silverman expanded beyond hotels to automobiles and real estate, creating a newfangled conglomerate in an era of disintegrating conglomerates. HFS acquired Coldwell Banker, Century 21 and Avis.

Today, the company expects to close its $625 million acquisition of Resort Condominiums International, the world's largest provider of exchange programs, which has two million time-share owners at almost 3,000 resorts around the world.

``HFS has evolved from what had been a pure hotel franchising organization into a consumer services giant that encompasses hotel franchising, residential real estate franchises and auto rental companies,'' said Michael Rietbrock, an analyst at Smith Barney Inc.

Most analysts said there were potential synergies between HFS and PHH, which had a net income of $86 million on revenues of $600 million for the year ending July 31.