Expedia’s plan to buy Orbitz Worldwide indicates that some first-class M&A tickets remain available. The online travel agent’s shares jumped 16 percent after it said it would pay $1.6 billion, including debt, to absorb its smaller rival. Despite evidence of fewer easy pickings, Expedia shows why the deal boom still has some runway.
Orbitz adds to a rapidly growing portfolio for Expedia. The second-largest company in the sector agreed to acquire Travelocity in January for $280 million and Wotif, an Australian discounter, last summer for $660 million. The consolidation is part of a broader merger resurgence that swelled to some $3.5 trillion last year.
Investors had been getting harder to impress, however. By the end of 2014, a smaller percentage of buyers were enjoying a post-deal stock uplift than they had earlier in the year, according to Thomson Reuters data.
For Expedia, Orbitz offers multiple benefits. It will provide additional customer traffic as it contends with $55 billion Priceline. There are also healthy cost savings anticipated, which Expedia reckons will tot up to $75 million a year. Taxed at 30 percent, they’re worth about $525 million to shareholders today. That’s double the value of the $263 million premium being paid to Orbitz owners.
That doesn’t fully explain the enthusiasm shown by investors in Expedia, who added $1.6 billion to the company’s market value, essentially paying for Orbitz in full. It may reflect optimism that Expedia will find even more ways to save money from the transaction, or perhaps new opportunities to sell more tickets and hotel rooms. Either way, the message to corporate acquirers is clear. Find the right deal destination, and the trip can be very rewarding.