As temperatures drop, many people start dreaming of warm climates and escaping the cold. Often that means a search for travel deals on sites such as Kayak, Expedia, Travelocity and Orbitz. So when Expedia said it would buy competitor Orbitz, many wondered what that meant for deals.
Drew Fitzgerald wrote for The Wall Street Journal that regulators will be taking a closer look at the deal:
Expedia Inc. ’s deal to buy rival Orbitz Worldwide Inc. makes it one of the most acquisitive online travel companies in the world, but it wasn’t long ago that it was warning regulators against a deal in the industry.
In 2010, the online travel company was among the loudest critics of a merger that shook up the industry, arguing the Justice Department should block Google Inc. ’s $700 million acquisition of flight-information software company ITA Travel. The company joined a coalition, FairSearch, that fought to stop the merger.
“Google has tremendous power in the search market, and it gives Google the ability to steer users in directions that are best for Google,” Expedia counsel Thomas Barnett, a former assistant attorney general at the U.S. Department of Justice, told The Wall Street Journal at the time. “All of that would ultimately end up harming consumers.”
Now, Expedia is the Web giant approaching regulators for approval as it tries to seal a $1.34 billion takeover of Orbitz. The deal would leave the U.S. and Europe’s most familiar travel websites under the control of just two companies: Expedia and Priceline Group Inc.
Expedia would control its namesake site, Orbitz.com, Hotels.com, CheapTickets.com and Travelocity. Priceline would control Priceline.com as well as Booking.com, Kayak and Rentalcars.com
According to Dennis Schaal of Skift, the combined company could have a 75 percent market share and Expedia is preparing for the fact regulators might not like that number:
If antitrust or other legal complications block Expedia Inc.’s acquisition of Orbitz Worldwide, Expedia would have to pay Orbitz a $115 million termination fee.
That detail emerged as Expedia Inc. filed a copy of the merger agreement with the Securities and Exchange Commission.
On the other hand, if Orbitz Worldwide were to accept a proposal superior to Expedia Inc.’s $12 per share, or $1.6 billion cash offer, then Orbitz would have to pay Expedia a $57.5 million termination fee. Orbitz Worldwide is prohibited from soliciting such an offer, but is free to accept one.
In a research note today, UBS pointed out that it is unlikely that a new bid for Orbitz would emerge because Expedia characterized the run-up to the acquisition as a “competitive process,” meaning bids were already solicited, if not submitted.
The potential Expedia payment to Orbitz over potential antitrust complications is notable because the deal will raise competition issues.
In the U.S., according to PhoCusWright, the new Expedia would wield 75 percent market share among online travel agencies, including Priceline.com, Booking.com, and CheapOair, among others. The numbers are for 2013.
CNBC’s Ari Levy said Priceline could benefit from the merger:
Priceline, Expedia and Orbitz all write huge and frequent checks to Google so when a traveler does a search for a hotel in New York or London, the OTAs get prominent placement in the paid results sections on the top and right said the page.
By having fewer rivals, the thinking goes, there’s diminished competition in search and on industry-specific sites like TripAdvisor. That’s all the more important, because Google is viewed as more than just a critical source of traffic. It’s also seen as a challenger after acquiring airline comparison service ITA Software in 2011 and introducing an accommodation search service Hotel Finder.
“You would expect a more consolidated OTA sector to increase both Expedia and Priceline’s power versus the hoteliers, and maybe over time push down the amount they have to spend to acquire customers, given fewer players competing for traffic from channels such as Google and TripAdvisor,” said James Cordwell, an analyst at Atlantic Equities in London. He has a “hold” rating on Expedia and “overweight” on Priceline.
Jeffrey Dastin wrote for Reuters that airlines were also concerned about the potential deal:
The U.S. airline industry expressed concerns on Friday about the tentative merger of Expedia Inc (EXPE.O) and Orbitz Worldwide Inc (OWW.N), saying it could hurt the travel business, but hinted it would not lobby actively against the deal.
Expedia’s agreement on Thursday to buy Orbitz for $1.33 billion marked the latest in a spree of acquisitions it and the larger Priceline Group Inc (PCLN.O) have made to become the world’s dominant online travel agencies.
Experts say the companies’ followings give them power when negotiating contracts with hotels and airlines, which to varying degrees rely on the sites to sell their products. Combined with Orbitz and Travelocity, which it acquired in January, Expedia received about 39 million unique website visitors in December 2014, according to Internet analytics company comScore Inc.
These mergers “strengthen Expedia’s position in the distribution chain and could have implications for consumers, travel agents and airlines,” Melanie Hinton, spokeswoman for the trade group Airlines for America, said on Friday in an email.
Expedia’s grab for the majority of the online travel market is putting the rest of the industry on edge. As consumer disposable income rises, more people will be looking to escape and Expedia is positioning itself to capture all the bookings – if they can get past the regulators.
