Expedia to Buy Orbitz for $1.34 Billion to Take On Priceline

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No Money in Airline Tickets, Economics in Hotels: Mahaney

Expedia Inc. agreed to acquire Orbitz Worldwide Inc. for $1.34 billion in cash, seeking to reclaim the lead in global online travel bookings from Priceline Group Inc. and fend off newer competitors such as Google Inc.

Expedia will pay $12 a share to add consumer-travel brands such as CheapTickets and HotelClub, as well as business-to-business websites such as Orbitz Partner Network. The deal represents a premium of 25 percent to Orbitz’s closing price Wednesday. The transaction is valued at about $1.6 billion including net debt, the companies said in a statement Thursday.

The proposed acquisition is set to push Expedia into the lead against Priceline in Internet travel bookings. It also continues a mergers-and-acquisitions boom in the industry. As growth flatlines for smaller websites such as Orbitz and Travelocity, larger players are snapping them up to bolster their businesses against competition from deep-pocketed Google.

“The thing that’s really been driving success in this business is size and scale,” said Edward Woo, an analyst at Ascendiant Capital Group LLC, who recommends buying Expedia stock.

Expedia’s total bookings, or the retail value of travel sold through its websites, reached $50.4 billion last year, and Orbitz had $12.4 billion. While Priceline hasn’t reported full-year gross bookings, it had $39.6 billion in bookings in the first nine months of 2014, compared with Expedia’s $39.1 billion.

Travel M&A

Priceline last year bought a minority stake in Ctrip.com International Ltd. and paid about $2.5 billion to purchase restaurant-reservations website company OpenTable Inc. Expedia, based in Bellevue, Washington, agreed last month to acquire Sabre Corp.’s Travelocity for $280 million in cash to bulk up against Priceline and other competitors.

With its latest deal, Expedia can “remain the 800-pound gorilla in the industry,” said Daniel Kurnos, an analyst at Benchmark Co. “There are going to be a ton of synergies.”

Orbitz had been reaching out to potential buyers, Bloomberg News reported last month, citing people with knowledge of the matter. Expedia said it would gain about $75 million in cost savings and other efficiencies from the deal, adding that it isn’t worried about antitrust scrutiny.

“Competition is fierce,” Expedia Chief Executive Officer Dara Khosrowshahi said on a conference call, citing the entrance of rivals including Google. “This is an absolutely huge industry and it’s highly fragmented.”

Broad Competition

Amanda Wait, an antitrust lawyer at Hunton & Williams in Washington, also said Expedia’s odds of winning approval from antitrust regulators for the deal are good.

“You’re looking at a reduction of competition from online travel agents, but they’re facing competition from other sources,” said Wait, a former lawyer with the Federal Trade Commission.

Expedia intends to keep the Orbitz brand intact, Khosrowshahi said on the call. Expedia’s various brands operate independently and that would continue with Orbitz, the CEO said.

As a result, the deal is unlikely to change the experience of online-travel booking for consumers, said Manish Hemrajani, an analyst at Oppenheimer & Co. For Expedia, increased market share may provide price negotiating power with hotels.

“Over the longer term, they can probably get better economics from the hotels,” he said.

Still, given Expedia’s spate of dealmaking, the company could face difficulties absorbing its acquisitions and “the management of a now very large number of brands,” Mark Mahaney, an analyst at RBC Capital Markets, wrote in a note Thursday.

Orbitz’s Results

Orbitz, which also reported fourth-quarter earnings Thursday, said total gross bookings increased 10 percent to $2.7 billion for the period. That was down from $3.1 billion in the third quarter.

The boards of both companies have signed off on the acquisition, which will still need approval from regulators and a majority of Orbitz’s shareholders.

Expedia, which counts billionaire Barry Diller of IAC/InterActiveCorp as chairman, has an enterprise value of $12 billion. Priceline’s is almost $55 billion.

Expedia rose 15 percent to $89.57 at the close in New York, with Orbitz soaring 22 percent to $11.72. Through Wednesday, Expedia shares had fallen 8.4 percent this year.

Rival TripAdvisor Inc. climbed 22 percent to $82.40 after falling 3.9 percent Wednesday following the company’s earnings report.

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