Baidu’s Qunar Said to Be in Merger Talks With Ctrip

Baidu Inc.’s Qunar travel website is in discussions to merge with International Ltd., according to two people with direct knowledge of the talks. Shares of all three companies surged.

The talks include a range of possibilities, from a full-blown merger to a partnership, the people said, asking not to be identified because the negotiations are private. The talks are at an early stage and may not result in a final deal, the people said. The ownership structure and financing methods haven’t been decided, they said.

Baidu, owner of China’s most-popular search engine, has invested in and acquired services to help it compete with Alibaba Group Holding Ltd. and Tencent Holdings Ltd. for China’s 618 million Internet users. The nation’s online travel market transaction volume will probably expand to 465 billion yuan ($75 billion) by 2017, according to IResearch, as a growing middle class spends more money on leisure and entertainment.

“They are in a very good position to benefit from such a booming industry,” Tian X. Hou, the founder of T.H. Capital LLC, said by phone from New York yesterday. “You have two big players in customer segments. Market consolidation is really good for both of them.”

Baidu rose 5.2 percent to close at $150.96 in New York trading yesterday, the biggest gain in a month. The shares are down 15 percent this year.

Qunar Cayman Islands Ltd. gained 15 percent to close at $30.84, the biggest one-day advance since its trading debut on Nov. 1. Ctrip rose 10 percent to $55.48, its largest increase since Feb. 18.

Different Segments

A merger would reduce costs for Ctrip, which often pays Qunar to acquire Web traffic to bolster its bookings, according to T.H. Capital.

The combined entity could have a valuation of at least $10 billion as the two companies cater to different market segments, said Alex Wang, an analyst at Shanghai-based IResearch. Qunar customers tend to do most of their bookings online, while Ctrip customers tend to use the company’s call centers.

“It makes sense for Ctrip to partner with Baidu because Chinese travel sites still rely heavily on search engines for traffic volume,” said Wang. “Travel is a very important component of Baidu’s advertising revenue, and working with Ctrip could help it better monetize this sector.”

Kaiser Kuo, a Beijing-based spokesman for Baidu, declined to comment on whether the company or Qunar are in talks with Ctrip. Ying Changtian, a Shanghai-based spokesman for Ctrip, declined to comment.

Mobile Services

It is unclear which company would take control of the other. Qunar is controlled by Baidu, which has a market capitalization of about $53 billion.

Qunar, which means “where to go” in Chinese, has been investing in mobile services as Chinese Internet users shop more on their smartphones. The company’s stock has more than doubled since raising $167 million in an initial public offering in the U.S. last year and it now has a market value of $3.5 billion, while Ctrip is valued at $7.2 billion.

Baidu paid $306 million in 2011 for a majority stake in Qunar. It had 58.6 percent of voting power at the end of last year, according to a Feb. 14 filing with the U.S. Securities and Exchange Commission.

Qunar reported sales of about $41 million in the quarter ended Dec. 30 and a net loss of about $20 million during the period.

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