Priceline to Buy Kayak for £1.12 Billion

on Nov 9, 2012

Priceline (NASDAQ:PCLN), the most valuable online-travel agency, has decided to acquire Kayak Software (NASDAQ:KYAK), a company that enables its users to compare relevant information from hundreds of travel Websites in one display.

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**The Deal**
Priceline is willing to pay $1.8 billion (£1.12 billion) in cash and stock for Kayak – a deal that marks the first time the travel agency has entered the metasearch, travel planning and advertising business, all of which were seen in the past as distractions to its core business of getting users to make bookings and generate transactions.

Shareholders of Kayak, which went public less than four months ago, will receive $40 a share. The price represents a 29 percent premium from Thursday’s closing price of $31.04 and includes some $500 million (£312 million) in cash and $1.3 billion (£812 million) in equity and assumed stock options.
“I see Kayak serving as a global entree into the advertising market for Priceline,” said Daniel Kurnos, an analyst at Benchmark Company. He said the deal could help Priceline “with their search rankings and give them some additional expertise in the technology department.”

Following yesterday’s press release informing investors of the future acquisition, Kayak’s share price jumped by 26.61 percent in afterhours trading.
**Kayak – Young and Fresh on the Stock Market** has been a travel company “from an earlier Internet age” as described by The New York Times and iit s natural for them to pursue acquisitions of younger companies with growth potential in order to gain customers and fend off competition from long-time rivals such as Expedia and Orbitz.

Kayak allows users to compare hundreds of travel sites when looking for flights, rental cars or hotels. When their users find what they are looking for they are redirected to the appropriate website to make their purchase and Kayak receives a referral fee. Some of the bookings can also be made directly on Kayak’s website or through its mobile application.

!m[Online Travel Agency Eyes Expansion through Acquisitions of High-Growth Companies](/uploads/story/761/thumbs/pic1_inline.png)The company went public on 23 July after waiting for about a year for the market to strengthen. Through its IPO it managed to float 3.5 million shares at $26 a piece, raising $91 million (£56.9 million). Kayak reported processing 302 million queries across its Web and mobile products in the third quarter, 31 percent more compared to the same period last year. Its financial results came out robust as well with net income rising to $7.2 million (£4.5 million) from $4 million (£2.5 million) a year earlier. Revenues soared by 29 percent to $78.6 million (£49 million), beating analysts’ forecasts of $77.4 million (£48.3 million).
Priceline will pay 57 percent more than Kayak’s IPO price for the acquisition.
**Priceline’s Third Quarter**
Third-quarter net income of the online-travel agency jumped 27 percent to $596.6 million (£373 million) from $469.5 million (£293 million) a year earlier. Shares in the company soared by 10 percent after Wall Street’s opening bell on 2 November as investors flocked to the stock, which was previously expected to underperform due to the deteriorating European business environment.
“Our forecast for the third quarter assumed that macroeconomic conditions will deteriorate further,” Daniel Finnegan, Priceline’s chief financial officer, said on a call with analysts. “We were pleasantly surprised to see conditions in Europe stabilize at least for the time being.”
In 2005 Priceline acquired the Amsterdam-based, which later helped it expand across Europe, where online-hotel bookings were slower to emerge compared to the US.


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