Expedia to buy Orbitz in cash deal worth $1.6 billion

Expedia to buy Orbitz in cash deal worth $1.6 billion

Expedia Inc has agreed a deal to buy Orbitz Worldwide in a transaction for $12 per share in cash.

The acquisition represents an enterprise value of $1.6 billion, a statement says, with a premium of around 29% “over the volume weighted average share price” up to February 11 this year.

Tnooz first learned a major deal was in the offing in January, with a number of suitors including Expedia tipped as likely contenders if a trade sale was the preferred option.

The pair say both their respective board of directors have approved the deal, although some regulatory approval may be necessary given Expedia’s recent strategic activity in the marketplace.

Less than a month ago, Expedia bought out the remaining parts of rival online travel agency Travelocity which it didn’t already control, in a deal worth $280 million.

In a recent earnings call, Expedia stated its intention to replicate the success of its Hotels.com loyalty scheme and the acquisition of OWW will help in this ambition.

Still, North America’s online travel agency ecosystem has gone from being a four-horse race just a month ago to now being dominated by two major players, in what is shaping up be to the battle of our time: Priceline versus Expedia.

Dara Khosrowshahi, president and CEO of Expedia Inc, says:

“We are attracted to the Orbitz Worldwide business because of its strong brands and impressive team. This acquisition will allow us to deliver best-in-class experiences to an even wider set of travelers all over the world.

Orbitz Worldwide CEO Barney Harford adds:

“Our mission at Orbitz Worldwide has been to build our brands to be the world’s most rewarding places to plan and purchase travel.

Interesting aside is that there will be a bit of a payout to Travelport which until last Summer held just under 40% of Orbitz which it reduced to 1% before its IPO.

Further details on the deal were provided during an analysts call when chief financial officer Mark Okerstrom said the deal would add ‘well recognised brands’ to the Expedia family to compete for consumer attention.

He added that Orbitz was ‘nicely profitable’ with its $12 billion in gross bookings and that there would be benefits in bringing it under Expedia’s ownership including $75 million in synergies.

During the call Orbitz was described as a ‘very well managed with a strong technology team and a business that has been built on some unique assets.’

The Orbitz partner network and Orbucks loyalty programme were also singled out as highlights of the deal with the former being ahead of Expedia and the latter described as ‘very interesting.’

Other areas of interest over the deal highlighted by Okerstrom as well as Khosrowshahi include the potential to accelerate the pace of new hotel signings, add further scale and run a more ‘efficient machine.’

When questioned on overlap in terms of suppliers and customers of the two business and related brands, Khosrowshahi said he anticipates significant overlap in supply in the US but that internationally hotel supply was more unique.

A detailed look at customer overlap has not yet been taken but Expedia believes there is a ‘very loyal base of Orbitz customers with no overlap’ and that they make up a significant portion of Orbitz’s profit.

Khosrowshahi said:

“The brands compete for the toss-up customer, those that have no loyalty and I think that will continue going forward.”

One final area of interest highlighted by Expedia was the skilled technology team at Orbitz in terms of possible shared best practise and the ability to boost capability. Khosrowshahi talked of a ‘war for global talent’, not wanting to be too dependent on a single market and the potential for growing the talent pool in Chicago-based Orbitz.

Finally, when questioned on increasing the pace of acquisition, he said the team ‘needs some sleep’ and that it had plenty to do for the time being without pouncing on further deals in the coming weeks and months.

Khosrowshahi added that Expedia needed to be careful not to let its acquisitions take away from the core business and to have a balance of organic and inorganic growth going forward.

Expedia anticipates it will take three to four months for shareholder approval as well as any regulatory hurdles so the deal is unlikely to close until the second half of the year.

– See more at: http://www.tnooz.com/

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