Ctrip, Qunar Agree to Share Swap, Form Business Partnership

  • Deal come five months after Qunar rejected Ctrip bid
  • Chinese Internet deals have passed $60 billion in past year

Ctrip.com International Ltd. and Qunar Cayman Islands Ltd. agreed to a share swap and partnership that creates China’s biggest online travel service, seeking to tap a record number of travelers heading overseas.

Baidu Inc., which controls Qunar, will own 25 percent of Ctrip, and the companies will combine products and services, according to a statement released Monday. Ctrip will have a 45 percent voting interest in Qunar. The exchange ratio represents a 36 percent premium to Qunar’s closing price on Friday, valuing the company at $7 billion. Ctrip and Qunar surged in pre-market trading.

The deal comes about five months after Qunar rejected a buyout offer from Ctrip.com amid fierce competition for online bookings in China, where an expanding middle class is jetting abroad. The country is the largest source of tourists in the world as Chinese travelers made 100 million outbound trips in 2014, according to iResearch, which cited data from the National Tourism Administration.

“It’s good for both companies,” said Henry Guo, managing director at Summit Research Partners LLC. “Competition between the two companies has hurt both of them in terms of profitability as there’s been some irrational pricing.”

Alibaba, Tencent

China’s three largest Internet companies are all seeking to capture more leisure travelers. Alibaba Group Holding Ltd. is expanding its Alitrip unit, and Tencent Holdings Ltd. offered to buy out the 85 percent of Elong Inc. it doesn’t already own as they compete with Baidu.

The acquisition would add to the $62.5 billion of Internet deals involving Chinese companies during the past year, data compiled by Bloomberg show.

Qunar is the leading seller of airline tickets with 32 percent of the market last year, while Ctrip had about 39 percent of hotel bookings, according to iResearch.

“Essentially it’s a merger between the two companies,” said Chi Tsang, an analyst at HSBC Holdings Plc. “If you look at the travel market, it’s such an obvious way to drive synergy through consolidation.”

JPMorgan Chase & Co. provided financial advice to Ctrip.

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