Priceline is acquiring Kayak for $1.8 billion in cash and stock. Yes, read it again. While unexpected, interestingly the news does not fundamentally tell us anything about the industry. Unless, that is, aside from Priceline’s willingness to use its strong stock performance to continue its aggressive growth. Kayak IPOed just a few months ago, on July 20, with a debut price of $26 per share. It closed on that first day of trading at $33 per share. Over the last 3.5 months, the price has fluctuated between $27 and $36.
The Priceline offer of $40 per share represents a 29% premium to its closing price, but only a 13% premium off of its close just four days ago when these negotiations were likely nearly complete (and an 8% premium off of its all-time high in early October).
Priceline’s high market capitalization makes the premium very manageable. While the stock dropped 2% after the announcement, it has a market cap of $31 billion, 4x that of its biggest competitor, Expedia, in part because of a price-sales ratio 3x that of the rival OTA.
That stock price certainly makes it easier to make acquisitions such as this, where $1.3 billion of the cost was in equity.
What can we learn from this deal?
If there is one big “a-ha” from this transaction, it is a sign of Priceline’s continued aggressiveness in building out the most robust travel portfolio on the planet.
Previous acquisitions for Priceline, including Booking.com and ActiveHotels, have focused on hospitality and have been in the $100 million range. Kayak is a meaningful departure from that for sure.
Less than a year after Expedia shed its media presence of TripAdvisor, Priceline is doubling down on media in the form of Kayak. This is a huge step in looking for value in travel search and advertising platforms, not just through the transaction channel.
This move represents an interesting departure for a major OTA and is obviously one worth watching. (Read More)