After acquiring Travelocity last month and Wotif in Australia a few months earlier, Expedia Inc. cleaned up a few missing pieces and agreed to acquire Orbitz Worldwide, including Orbitz, CheapTickets, eBookers, and HotelClub in a $1.6 billion cash deal.
The announcement of the deal today was a stunner -- although it shouldn't have been. When Expedia initially began running Travelocity's North America sites in late 2013 Expedia stated that it was interested in similar deals.
And last week during Expedia's fourth quarter of 2014 earnings call, Expedia Inc. CEO Dara Khosrowshahi said the company would continue to be acquisitive in 2015. "As far as acquisitions go, acquisitions are a part of our game plan," Khosrowshahi said February 5. "We've had a number of acquisitions over the years and I would say that our technology platforms now and our operating practices now are at a different level where we are good at and have a very strong practice at bringing in and consolidating acquisitions and realizing synergies."
The big four U.S.-based online travel agencies, including Expedia, Travelocity, Orbitz, and Priceline.com, have now just become the big two, with CheapOair rounding out the field.
Given the consolidation in the U.S. travel industry, the Expedia-Orbitz deal could trigger a regulatory fight with the U.S. Justice Department or Federal Trade Commission, although Expedia officials in a conference call today played down that possibility.
It won't just be online travel agency competitors which will be raising eyebrows. The deal makes Expedia-Travelocity-Orbitz even more powerful in negotiating deals with hoteliers around the world
Itty-Bitty Expedia
Expedia CFO Mark Okerstrom argued that Expedia Inc., which would now include Expedia, Travelocity, Orbitz, Hotels.com, Hotwire, Trivago, eBookers, and eLong, among other brands, is a "small player" in the $1.3 trillion global travel industry, commanding overall market share in the single digits.
According to Euromonitor International, Expedia's share of the global travel retail market in 2014 would have been 6.3% if Orbitz' assets are added, compared to Priceline's 4.9%
That's the argument that Expedia will undoubtedly make to regulators. Inferring that there might be a protracted regulatory process, Okerstrom said he doesn't expect the deal to close until "the back half of the year."
A spokesperson for the Priceline Group declined to comment when asked whether the company would fight the Expedia-Orbitz deal on antitrust grounds. CheapOair didn't immediately respond to a request for comment.
There are also break-up fees for each side if the deal doesn't go through, although the details on this haven't been released yet.
What's the Plan?
The plan going forward is that Orbitz Worldwide properties would still operate as separate brands within the Expedia Inc. portfolio, although Orbitz's hotel inventory would be tied into the Expedia technology platform and Orbitz would be able to market Expedia's wider array of global hotel properties.
Okerstrom said the acquisition would be a big revenue opportunity because Orbitz would now be able to offer hotel rooms at "our economics."
Talking financials, Okerstrom said Expedia would be able to achieve $75 million in synergies from the deal, and Expedia Inc. would generate an additional 75 cents per share in earnings in 2015, depending on when the deal closes.
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