Expedia pays $1.3 billion in cash for rival Orbitz
The online travel booking company Expedia Inc clearly believes bigger is better.
The company struck its second acquisition in two months on Thursday, agreeing to buy Orbitz Worldwide Inc for about $1.3 billion in cash to add yet another wellknown brand to its ranks.
The transaction further solidifies the US market for online travel booking to two companies, Expedia and the much bigger Priceline Group. Still, both companies continue to face competition as rivals like Google Inc and the start-up Hipmunk enter their business.
But while Priceline has made only a few acquisitions that give it entry into new areas, like restaurant reservations with the purchase of OpenTable last year, Expedia has shown more willingness to buy up brands to gain scale. Acquiring Orbitz will bring not only that company’s namesake brand but also CheapTickets and HotelClub, as well as the corporate travel site Orbitz for Business.
Those brands will be joining a stable that already includes well-known names like Hotels.com, Hotwire and Trivago.
Since the summer, Expedia has announced deals for Travelocity and Wotif. com of Australia.
And in a conference call with analysts, the company hinted that its deal-making streak may continue as it seeks to bolster its barriers against competitors. (Its market share in the travel retail area will move up to about 6% after the Orbitz acquisition, according to Euromonitor International.)
“We think the consolidation that you’re seeing is natural in a highly fragmented marketplace,” Dara Khosrowshahi, the company’s chief executive, said on the call. “This is a scale business.”
Tom White, an analyst at Macquarie, agreed with that assessment. “It’s a space where the big are going to continue getting bigger.”
But unlike Travelocity and Wotif, which both analysts and Expedia executives contended were underperforming, Orbitz is considered well-managed.
Expedia plans to run Orbitz’s searches against its much bigger inventory, particularly of hotels and car rentals, in an effort to secure more bookings.
To White of Macquarie, the acquisition appears aimed partly at helping Expedia take advantage of big technology upgrades that it undertook over the last several years. Amassing more searches could help capitalise on those expenditures.
Under the terms of the deal, Expedia will pay $12 a share in cash, 24% higher than Orbitz’s closing price on Wednesday. Overall, Expedia said that it expected the acquisition to contribute about $75 million in cost savings.
Analysts had expected for some time that Orbitz would be sold, given its relatively small size. Created in 2001 as a venture by several major airlines, the company later became part of the conglomerate Cendant and then Travelport. It went public again in the summer of 2007.
Khosrowshahi acknowledged on Thursday’s call that Expedia had faced competition for Orbitz. (Bloomberg News had previously reported that private equity firms and Internet rivals had also expressed interest.)
Mark Mahaney, an analyst at RBC Capital Markets, wrote in a research note on Thursday that the deal was unlikely to stir up opposition from anti-trust regulators given Orbitz’s relatively low market share.
He added that he had long believed Orbitz was “one of the weakest players in online travel.”
Despite the current dominance of Priceline and Expedia among specialists in online travel booking, Khosrowshahi contended in the conference call that others — notably Google — were trying to move in on the two companies’ turf.
Mahaney cautioned that a more pressing issue was corporate indigestion.
Given its recent spate of acquisitions, Expedia may have trouble properly integrating Orbitz, Travelocity and Wotif into its fleet of brands — while also dealing with some existing brands, which he did not identify, that have been losing market share.
Expedia executives sought to play down that worry, pointing to their previous work in absorbing acquisitions.
“As far as being knee-deep in integrations, we’re getting pretty good at them,” Khosrowshahi said.