Expedia buys rival travel operator Orbitz for $1.6 bn

Expedia buys rival travel operator Orbitz for $1.6 bn

US online travel operator Expedia announced plans Thursday to buy rival Orbitz Worldwide for about $1.6 billion, in a move that further consolidates the sector.

Expedia will pay $12 in cash for each Orbitz share as it buys its rival for about $1.6 billion

Expedia will pay $12 in cash for each Orbitz share, in the takeover approved by the companies' boards of directors.

Dara Khosrowshahi, Expedia's chief executive, said the deal is part of a strategy "to own and power the very best travel brands in the world."

The consolidation in the industry, he said, "is natural in a highly fragmented marketplace... this is a scale business."

The deal which includes the Orbitz online booking site as well as brands such as CheapTickets, ebookers and HotelClub is subject to shareholder and regulatory approval.

The price represents a 29 percent premium over the most recent share price of Orbitz, the companies said in a statement.

Barney Harford, the CEO at Orbitz, said the tie-up would "further enhance the offerings we provide to our customers and partners."

The announcement comes less than a month after Expedia announced the purchase of rival Travelocity in a $280 million deal.

The dealmaking takes place amid increased competition in the travel sector from websites such as Priceline-owned Kayak and others which scan the Internet for the best deals.

Expedia operates other travel sites including Hotels.com and Carrentals.com. It also holds a stake in the Chinese travel operator eLong.

According to the research firm Morningstar, Expedia and Priceline each have around 30 percent of the global online travel agency booking market, followed by Orbitz's eight percent share, with several smaller players holding the remaining share.

The research firm Trefis said Expedia has around five percent of a travel market worth some $1.3 trillion annually.

"The rule in the (online travel) space seems to be: the bigger the scale and the more diversified the offerings, the higher the chances are of generating profitability," Trefis said.

Expedia in 2014 saw the number of bookings rise 28 percent to 50 million, and reported a profit of $398 million.

- Cost synergies -

RBC Capital Markets analyst Mark Mahaney said in a note to clients that the deal was "not surprising given Expedia's recent appetite for acquisitions and press reports of Orbitz putting itself on the market."

He said the $75 million in synergies estimated by the companies was "achievable" as a result of cost savings from the consolidation, and maintained that "we don't believe regulatory hurdles will be significant."

Mahaney said Orbitz "has been one of the weakest players in online travel" while Expedia "has demonstrated an ability to work through industry challenges, while laying the foundation for strong growth."

Speaking at an investor conference earlier this week, Expedia chief financial officer Mark Okerstrom said the company sees opportunities for growth in "an absolutely massive" global travel industry worth some $1.3 trillion.

"Everything we're doing... is all along the same vein of us just expanding our presence as a distributor of travel -- a marketplace, a platform for travelers to meet up with travel suppliers," he said.

Orbitz was launched in 2001 by major US airlines as a way to counter the presence of online booking services such as Expedia and Travelocity, but was later spun off as an independent company.

Orbitz at the same time published its financial results, showing profits rose 36 percent in the fourth quarter to $7.3 million, while revenues increased 12 percent to $221 million.

For the full year, profit fell a sharp 90 percent to $17.3 million while revenues grew 10 percent to $932 million.

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