Expedia, Inc. (EXPE, Financial) seeks to increase its customer base by purchasing their rival Orbitz Worldwide, Inc. (OWW, Financial) for a whooping $1.38 billion. This will be the company's third acquisition in the last four months. Just last month, Expedia acquired Travelocity and acquired Wotif.com Holdings Limited (Wotif Group) in November 2014.
Expedia, the one-stop online travel site is a parent company to many global travel brands. Some of them include Hotel's.com, Hotwire.com, Egencia, Classic Vacations, eLong and many more. Currently, the market capitalization of the company is $9.92 Billion and the P/E ratio (ttm) is 29.82. The company is willing to shell out about $12 a share in cash. This is almost a 25% premium over Orbitz's closing price on trading day Wednesday. This premium percent saw shares of Orbitz's rise up 20% to $11.63. However, Expedia's offer was $12 per share. The shares of Expedia rose 13% to $88.50.
THE PRESIDENT AND CEO SPEAKS
Dara Khosrowshahi, the CEO and president of Expedia, said that they were attracted to Orbitz due to their impressive team and their strong brands. He said that the acquisition would help them to increase their traveler base and would also deliver best in-class experience to their customers. The Orbitz Partner Network and Orbitz for Business were the main brands that attracted Expedia. Both the company boars have given a go-ahead. It however needs an approval from shareholders. If shareholders approve and customary closing conditions are satisfied, the deal will be finalized. Barney Harford, the CEO of Orbitz Worldwide said that Orbitz was excited to join Expedia, Inc. family and that their team is looking forward to welcoming Expedia with open arms.
Expedia purchased Travelocity in January for $280 million. Khosrowshahi also said that the strategic marketing agreement between Expedia and Travelocity would ensure supply base, best customer service and best in-class booking platform. Expedia acquired Wotif Group last year for $658 million. This acquisition helps Expedia expand in Asia-Pacific region as well as to grow the global hotel business in the competitive environment.
EXPEDIA'S LARGEST RIVAL
Priceline Group Inc. (PCLN, Financial), the world's leader in the online travel industry, is Expedia's biggest rival. It seems that this acquisition is taking on competition of Priceline Group Inc in the online travel world. Priceline shares were up 2.8 percent after the acquisition news was announced. Priceline's market capitalization is currently around $55 billion. Expedia and Orbitz both put together doesn't reach the market caps of Priceline. Expedia slipped behind their largest rival recently and is currently the second-largest travel service company.
Mark Okerstrom, Chief Financial Officer of Expedia, said that anti-trust issues was played down. He said that the travel industry is huge, but the $1.3 trillion industry is fragmented as well. He said that they were a small player and their overall shares were merely in single digits. Mark Mahaney, analyst at RBC Capital Markets said that Orbitz was one of the weakest players in the online travel industry. He also said that the regulatory hurdles would not matter to a great extent. Bloomberg reported that Orbitz were exploring the possibility of a sale and had taken the service of a financial adviser to reach out to buyers.
This acquisition may generate cost savings up to $75 million, according to Expedia. Around 75 cents will be added to earnings to the current enterprise value of $1.6 billion. Orbitz currently has 110.8 million shares, excluding the 25,237 shares which are held in treasury. The equity value of this acquisition will then be based on the cumulative shares, said Sarah Waffle Gavin, Expedia Inc spokeswoman. Orbitz's gross bookings increased last quarter from $2.48 billion to $2.74 billion. There was a 37% increase in its quarterly profit.
Industry observers say that even though Expedia is acquiring many companies at such a rapid rate, it will have a negligent impact on what the traveler is looking out for in search results. However, competition in the online travel industry will remain vibrant. The travel industry is undergoing a lot of consolidation in the past years. 2013 saw many acquisitions, the notable one being Priceline taking over Kayak.
