Priceline.com Inc. (PCLN) announced that it has signed an agreement to buy Kayak Software Corp. for $1.8 billion or $40 per share, in a move to expand its online travel business.
Under the terms of the deal, Priceline will pay $500 million in cash and $1.3 billion in stock. Following the transaction, Kayak shares jumped 27%, while Priceline shares fell about 1.9%, in the extended trading hours. Subject to customary closing conditions and regulatory approval, the buyout is expected to close in the first quarter of 2013.
Based in Concord, Kayak is a leading travel research site that helps consumers to compare prices for airlines, hotels and rental cars from hundreds of websites, including Priceline competitors such as Orbitz Worldwide, Inc. (OWW) and Expedia.com (EXPE). The company recently reported its third quarter profit of $8 million, an increase of 14% from the year-ago quarter.
We believe the deal will likely increase Priceline's market share in a weakening economy. Recently, Kayak announced its expansion into Russia and also acquired travel search companies in Germany and Austria. Considering the condition of the global economy and the fact that Priceline has a significant exposure to the European region, the company needs to increase its market share in other regions.
Upon the completion of the deal, Kayak will continue to operate independently as a Priceline Group company. Management also stated that the acquisition will not have any impact on the company’s earnings in 2013.
Priceline.com is one of the leading online travel companies in the world, helping people to shop for travel. We believe that Priceline will continue to invest in the business to push growth and especially to continue its international expansion strategy. Despite a weak macro environment, Priceline reported strong third quarter results with earnings beating the Zacks Consensus by 40 cents (3.5%).
Priceline retains a Zacks #2 Rank, which translates into a short-term Buy rating.