USA Interactive's unsolicited $4.5 billion offer for shares of three online travel and ticket subsidiaries could spell trouble for rivals Sabre Holdings Corp.'s Travelocity.com Inc. and Cendant Corp.'s Trip.com.
The offer is for the 46 percent share USA Interactive does not already own in Expedia.com and a 34 percent interest each in Hotels.com and TicketMaster. The offer was not “hostile,” according to New York-based USA Interactive.
“USA Interactive has the potential for dramatic growth, which would only be enhanced by the realignment we propose,” Barry Diller, chairman/CEO of USA Interactive, said in a statement yesterday.
“By exchanging their shares in our public subsidiaries for shares in USA, the subsidiaries' public shareholders would participate in the opportunity and upside of USA while retaining a continued ownership interest in the businesses in which they now own shares.”
Public shareholders of the three firms are being offered a 7.5 percent premium for their shares as of May 31. TicketMaster and Expedia said they would form committees of independent directors to discuss the offers.
“The bigger and the stronger USA Interactive gets, the more the pressure is put on Cendant and Sabre, who are also big leaders in the marketplace,” said Lorraine Sileo, analyst at online travel consultancy PhoCusWright, Sherman, CT. “[Cendant and Sabre] need to accelerate their efforts into hotels, and they need not to give up on what they're doing.”
Consolidation mainly strengthens USA Interactive in the accommodations and lodgings end of the $20.2 billion online travel marketplace, which is one-tenth of the overall industry. Expedia and Hotels.com have a combined 48 percent share of online hotel bookings.
Travelocity last year was the No. 1 online destination for airline ticket and travel packages with a market share of 31 percent, according to PhoCusWright. Expedia was close behind, with 29 percent. Name-your-price site priceline.com was third at 12 percent.
But, in an upset this first quarter, Expedia became the No. 1 site and Travelocity No. 2. Orbitz.com, owned by five major airlines, took the third spot.
To regain lost share and acquire new customers, Travelocity last month began a $40 million advertising campaign to reposition itself as a travel destination site and not just a purveyor of low-margin airline tickets. That effort follows an estimated $45 million ad push by Trip.com.
These sites, however, have reason to fear USA Interactive's burgeoning size. Should USA acquire total ownership of its three subsidiaries, combined with the May 31 offer of $578 million for time-share firm Interval International, it could increase its leverage in terms of supplier relationships and ad buys.
“The implications should be more synergy among the disparate companies,” Sileo said. “Expedia and Hotels.com are so similar and actually compete against one another. This will make it easier for the two companies to coordinate marketing strategies and eventually merge with one another.”
For USA Interactive, the offer for the three companies is a gamble on e-commerce. Diller, former head of USA Networks, Fox and Paramount, claims his company already is the most profitable online firm after auction site eBay.
Diller in December sold the entertainment assets of USA Networks to Vivendi Universal for $4 billion in cash and stock. Besides its online travel and ticket arms, USA Interactive also runs the Internet store of Home Shopping Network.