Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

TripAdvisor Inc. has been mentioned before as an acquisition target, but could it now be laying the groundwork for a takeover? Tweaks to its executive-severance plan suggest so.

The travel-site operator adopted a plan earlier this month that better remunerates key executives whose jobs may be jeopardized by a change-in-control event such as a merger or sale of the company. The change offers management more lucrative exit packages if they remain in place during the immediate period before or after a TripAdvisor deal is integrated, making them more likely to stay on once an agreement has been reached.

If TripAdvisor is more open to a deal, are there any buyers out there? As my colleague Tara Lachapelle has previously written, both Priceline and Expedia may have their eye on the company, which boasts 415 million average unique monthly visitors. And while it's in TripAdvisor Chairman Greg Maffei's interests to talk his own book, he did say at a March conference that the company could attract the likes of Facebook Inc., Amazon.com Inc. and Alibaba Group Holding Ltd. as they seek a bigger share of the online travel industry.

Big Spenders
Priceline and Expedia are TripAdvisor's largest advertising partners. With mobile users referred to advertisers' sites spending at a lower rate, revenue growth may reverse course.
Source: SunTrust Robinson Humphrey, comScore

But any deal is far from guaranteed and if management wants to line one up, there's more it can do to grease the wheels. For one, TripAdvisor could make itself a little more easy to purchase if it regains voting control by acquiring a stake in the company that's currently held by Liberty TripAdvisor Holdings Inc., where Maffei also is chairman. The company can do so without being penalized as it's now well over two years since Liberty TripAdvisor's tax-free spinoff from Liberty Interactive Corp. A hurdle, though, is that TripAdvisor's own stock-- which could be needed as currency to at least partly fund the stake purchase -- is trading substantially off its highs.

TripAdvisor's market value has shrunk to $5.7 billion from over $9 billion this time a year ago, in part because it's battling with tweaks to its business model after attempting to become a fully fledged booking company rather than a pure review site. Its earnings have also been pressured by an uptick in visitors via mobile devices who tend to use the site for research and planning rather than for booking travel and are therefore less coveted by advertisers.

Quite a Trip
TripAdvisor shares are trading around their lowest level in four years. Analysts don't expect a rebound anytime soon.
Source: Bloomberg

Even after the stock's decline, TripAdvisor isn't exactly cheap. Its enterprise value-to- Ebitda multiple is roughly 15.2, below its own and its peers five-year historical average of 18.9 and 18.7, respectively. But that's still above the valuation of its two most likely buyers, Expedia and Priceline, even though their stocks have recently outperformed that of their potential target:

Differing Destinations
TripAdvisor has struggled over the past year, in part because of rising competition and a surge in mobile users, who are the recipients of less advertising
Source: Bloomberg
*The company bought back $250 million of its shares between January and August, which has done little to support its share price

Potential acquirers may be better off waiting to see if TripAdvisor's stock either stabilizes or slides further to a level where a deal becomes more compelling. Still, if a transaction is struck, odds are good that TripAdvisor's management will consider it worth their while to facilitate a smooth transition.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Specifically, if they're let go within three months prior to a change in control or 12 months after, they'll earn a lump sum equivalent to 12 to 24 months of their base salary, plus a bonus that could be up to twice its targeted size as well as health care. They'll be entitled to a lesser amount if they are fired more than three months before a deal is closed or more than a year afterward.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net