Online travel, which has been one of the hottest areas of the stock market in recent years, just got a little hotter.
Expedia Inc (NASDAQ:EXPE) announced today that it had sold its majority stake in the Chinese online travel company eLong, Inc. (ADR) (NASDAQ:LONG) to Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) and a number of other buyers.
The three companies issued statements announcing the move, which saw EXPE divest its entire 62.4% stake in eLong in exchange for $671 million, giving the company a valuation just under $1.1 billion. Of that 62.4%, CTRP bought 37.6% of eLong for roughly $400 million.
Shares of CTRP, EXPE and LONG stock are all up sharply today on the news — and for good reason. The sale should truly be a rare win-win-win for shareholders in each company as the online travel industry gets even more intertwined.
A Strategic Deal
Expedia has been wheeling and dealing in 2015: In late January, EXPE acquired the online travel and booking site Travelocity from Sabre Corp. (NASDAQ:SABR) for $280 million in cash. Not three weeks later, EXPE turned around and dropped $1.6 billion in cash for Orbitz Worldwide, Inc. (NYSE:OWW), consolidating the online travel space even further.
Now it seems EXPE wants to raise some cash on its own, and put that to work focusing on the markets it knows best. Investors applauded the move sending EXPE stock up 5%. And what’s not to like? As I said, this deal is a win-win-win.
That’s because the deal allows each company — LONG, CTRP and EXPE — to stick to their specialties. Ctrip made it very clear that the deal was “strategic,” meaning that it planned to integrate eLong into its current business instead of re-sell it a year or two down the road for a profit.
LONG and CTRP are clearly a nice fit for each other. The China-based LONG has a stated network of about 510,000 properties across the globe on its booking website, which will only increase Ctrip’s leading market share in the country. Ctrip claims to be the biggest online aggregator of accommodations and travel tickets in China.
But that’s not all. CTRP and EXPE also agreed to collaborate with one another going forward. From Ctrip’s news release:
“Ctrip and Expedia have agreed to cooperate with each other to allow their respective customers to benefit from certain travel product offerings for specified geographic markets.”
While that’s extraordinarily vague, it sounds like Expedia and Ctrip will essentially be referring their customers to one another and arranging some sort of revenue share. That would be similar to the arrangement Ctrip made with Priceline Group Inc (NASDAQ:PCLN) last August, when PCLN took a $500 million stake in CTRP and the companies agreed to increase the cross-promotion of each other’s websites.
CTRP stock rocketed as much as 14% higher today on the announcement … a rally that’s easily justified by the LONG stock acquisition and new alliance.
As of this writing, John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.