Online Travel Merger: Priceline to Buy Kayak for $1.8 Billion

Thursday, 08 Nov 2012 04:38 PM

 

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Priceline.com Inc., the most valuable online-travel agency, has agreed to buy Kayak Software Corp. for $1.8 billion in cash and stock to expand its Web-based travel services.

Kayak shareholders will receive $40 a share, the companies said in a statement. That price represents a 29 percent premium over Kayak’s closing price of $31.04 in New York Thursday, and it includes about $500 million in cash as well as $1.3 billion in equity and assumed stock options.

Priceline has been using acquisitions to add customers as it works to grow sales and fend off competition in a sluggish economy. Kayak, which raised $91 million in an initial public offering in July, lets travelers compare prices and make reservations for hotels, flights, cars and vacations.

“It is obviously a great source of customers for Priceline,” said Andre Sequin, an analyst at RBC Capital Markets. “We weren’t really expecting it on our end. Priceline’s done very well in this space on their own, and as Kayak does serve competitors as well, it wasn’t necessarily a step we were looking for them to do.”</p><p> The shares of Norwalk, Connecticut-based Priceline slipped as much as 2.5 percent to $612.12 in extended trading after the deal was announced. Earlier, the stock fell 1.1 percent to $627.87 at the close in New York. Kayak surged as much as 32 percent to $41.01 in extended trading.

‘Strong Brand’

The boards of each company have unanimously approved the transaction, which is expected to close in the first quarter of 2013. Kayak’s current management team will continue to run operations as an independent unit within Priceline.

“Kayak has built a strong brand in online travel research and their track record of profitable growth is demonstrative of their popularity with consumers and value to advertisers,” Priceline Chief Executive Officer Jeffery Boyd said in the statement.

Kayak’s competitors in the online travel market include Google Inc. and Microsoft Corp., which have both made acquisitions to expand their businesses, as well as startups like Hipmunk Inc.

The company was founded in 2004 by Chief Executive Officer Daniel Stephen Hafner and Paul English, the chief technology officer. They held a combined 16 percent of the company’s voting power as of July. The biggest backers at the time of the IPO were General Catalyst Partners, Sequoia Capital, Accel Partners and Oak Investment Partners.

Morgan Stanley and Deutsche Bank AG led Kayak’s offering.

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