Expedia Inc. on Thursday said it agreed to acquire smaller
competitor Orbitz Worldwide in a move that will allow Expedia to overtake Priceline Group as the world’s largest online travel agency (OTA) by
gross bookings.
Potentially, Expedia Inc. could control well over two-thirds
of U.S. purchases on OTAs.
Expedia, which made the announcement less than two weeks
after acquiring Travelocity for $280 million, will pay $12 a share for Orbitz,
or 29% more than Orbitz’s share-trading price Wednesday.
While Expedia pegged Orbitz’s enterprise value at $1.6
billion, the value of the acquisition is about $1.34 billion, factoring in the
number of outstanding shares and share price.
"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," said Dara Khosrowshahi, Expedia’s president and CEO.
The acquisition will make Expedia the world’s largest OTA by
bookings, though Priceline will remain the largest by revenue, as Priceline collected almost 17 cents in revenue per dollar booked through the first three quarters of last year. In comparison, Expedia and Orbitz collected about
11 cents and 7 cents in revenue per dollar booked, respectively.
Last year, Expedia and Orbitz combined for almost $63
billion in travel bookings. Through the first three quarters of 2014, bookings
at Priceline were tracking 32% ahead of the previous year, putting its 2014
bookings in the $52 billion range. Priceline reports fourth-quarter and
full-year 2014 financial results on Feb. 19.
The acquisition will also give Expedia, already the most
popular OTA among Americans, the opportunity to shore up its dominant position.
In 2013, Expedia accounted for 42% of Americans’ purchases
on OTAs, while Orbitz and Travelocity controlled 19% and 14% respectively,
giving those three companies control over about 75% of OTA purchases in the U.S.,
compared with Priceline’s 19%, according to a Phocuswright study. (Phocuswright and Travel Weekly are owned by Northstar Travel Media.)
Since then, Priceline’s U.S. market share likely has
increased because of Booking.com’s growth. Douglas Quinby, Phocuswright’s vice
president of research, said Booking.com made big strides last year, as its U.S.
advertising campaign paid dividends.
“If you call a bunch of hotels, especially big hotels, and
ask them ‘Who is your biggest seller?’ it’s going to be Booking.com,” said
Quinby. “Nine times out of ten, I’d be willing to bet.”
Still, with Orbitz and Travelocity under the Expedia Inc.
umbrella, Expedia may end up controlling more than two-thirds of U.S. bookings
through OTAs.
The level of scrutiny U.S. antitrust regulators will give
the proposed Orbitz acquisition remains in question.
Orbitz’s brands include the eponymous Orbitz.com plus
CheapTickets, eBookers and HotelClub. Orbitz’s private-label distribution service,
Orbitz Partner Network, and its travel management company, Orbitz for Business,
also are part of the deal.
The boards of Expedia and Orbitz have approved the deal,
which awaits approval from Orbitz shareholders and the government.
Orbitz’s shares were up about 22% early Thursday afternoon,
while Expedia’s were up 16%, indicating that investors thought that the
acquisition was a near certainty.
Priceline’s stock was up about 4%, hinting that the
consolidation could give OTAs more pricing power.
Orbitz released its fourth-quarter earnings Thursday, and
said fourth-quarter net income jumped
39% from a year earlier, to $7.3 million, on a combination of higher revenue
and lower selling and administrative costs. Revenue advanced 12%, to $220.6
million, while gross bookings were up 10%, to $2.74 billion.