Priceline Group Inc. (PCLN), the largest online travel agent in the U.S., will invest $500 million in Ctrip.com International Ltd. (CTRP) to broaden the companies’ options in China. Ctrip shares surged.
Priceline and Ctrip, which have had a commercial partnership since 2012, will increase their cross-promotion of each company’s hotel inventory and other travel services, the companies said yesterday in a statement.
Ctrip, China’s biggest travel website, is expanding its hotel-booking business as sales increase. Chinese revenue per available room rose 7 percent in May, the highest growth since 2010, according to Bloomberg Intelligence. Ctrip’s total sales climbed 38 percent to about $276 million in the second quarter, according to a statement July 30.
The partnership with Ctrip will spur both companies’ growth, allowing them to access each other’s portfolios, said Priceline Chief Executive Officer Darren Huston. It will bring to Priceline more bookings from Chinese travelers going abroad as well as increase the selection of accommodations and broaden the company’s geographic reach within the country. Currently, Priceline is under-represented in China when it comes to accommodations, he said.
Ctrip’s shares rose 11.7 percent to a record $67.53 at 10:52 a.m. in New York, which would be the biggest one-day increase in a year for the Shanghai-based company. Priceline, based in Norwalk, Connecticut, increased less than 1 percent to $1286.27, giving the company a market value of $67.4 billion.
“It’s like putting products on the shelf. If you put more products on the shelf, it enhances the value of the store,” Huston said.
Chinese travelers are critical to any global travel company, he said. The middle class, which has increased amid explosive economic growth, makes more money and wants to see the world. An increasing number of Chinese tourists are shifting online to book their plans, a market that Priceline is eager to tap into.
“Our primary way of growing as a company has and will be organic growth, and the commercial side of this deal is critical to helping us keep up the fast pace of organic growth,” Huston said.
Priceline has used acquisitions to drive growth and surpass Expedia Inc. in revenue, including last year’s purchase of Kayak Software Corp. for about $1.7 billion.
Priceline’s investment in Ctrip, through a convertible bond and an agreement to buy Ctrip shares on the open market over the next year, means the company may own as much as 10 percent of Ctrip.com, which is listed on the Nasdaq Stock Market. With the purchase of the convertible bond, Priceline has the right to name an observer to Ctrip’s board.
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