Less than one month ago, Expedia (NASDAQ: EXPE) purchased Travelocity for $280 million in cash. Now, the travel deal site has its eye on Orbitz (NYSE: OWW). Expedia says it will buy one of its biggest rivals for about $1.38 billion in cash. This will be the third acquisition for the travel company in the last four months.
Orbitz’s shares rose 20% to $11.63 on Thursday morning, which was just shy of the $12 per share offer made by Expedia. Expedia’s shares increased 13% to $88.50. Priceline’s shares rose 2.8% as well.
The acquisition is a part of Expedia’s plan to take on its biggest rival: Priceline Group Inc. (NASDAQ: PCLN). Priceline’s $55 billion market capitalization is larger than Expedia and Orbitz combined. That being said, Expedia is still the world’s second largest travel service company when it comes to bookings.
Mark Okerstrom, Expedia’s CFO, played down the idea of possible antitrust issues, calling the market “highly fragmented”. In a $1.3 trillion industry, Expedia says it’s merely a small player and its share is in the single digits.
According to a RBC Capital Markets analyst, regulatory hurdles would not be significant as Orbitz is currently one of the weakest companies in the industry.
Expedia has been making a push to expand rapidly, buying Travelocity in January and Wotif Group in November. Expedia’s CEO Dara Khosrowshahi says Orbitz’s team and strong brands are what attracted the company to them. Orbitz was exploring the possibility of a sale and asked a financial advisor to get in touch with prospective buyers.
The deal is expected to add 75 cents to earnings for Expedia and save $75 million. The deal’s equity value is based on 115 million Orbitz shares that are still outstanding.
Orbitz also reported a 37% increase in quarterly profits. The company’s gross bookings increased from $2.48 billion to $2.74 billion.