Cendant Agrees to Buy Cheap Tickets
Hotel, real estate and car rental giant Cendant Corp. agreed Monday to buy discount air fare company Cheap Tickets Inc. for $425 million in cash.
It is the second travel-related acquisition this summer for Cendant, and would give the owner of the Days Inn, Super 8 and Avis brands an influential distribution platform from which to promote these properties to air travelers.
The deal calls for New York-based Cendant to pay $16.50 each for all outstanding shares of Honolulu-based Cheap Tickets, a 39% premium to its closing price Friday.
The transaction is expected to be completed in the fall, barring regulatory intervention.
Shares of Cheap Tickets surged $4.48, or almost 38%, to close at $16.33 on Nasdaq, signaling investor expectations that the deal will be approved. Cendant shares gained 42 cents to close at $19.62 on the New York Stock Exchange.
In June, Cendant said it would pay $3.3 billion for Galileo International Inc., which books nearly one-third of the world’s travel reservations via its electronic network, or global distribution system. Galileo receives fees each time a travel agent or Web site uses its service to book airline, hotel or car reservations.
Cheap Tickets uses Sabre Inc., another electronic network, but the company is expected to switch to Galileo, assuming both mergers are completed.
The Cendant-Galileo deal is in flux as U.S. and European regulators look for possible antitrust violations.
The planned purchase of Galileo raised concerns that Cendant could distort the powerful distribution system to favor its own properties and use it to gain sensitive information about its competitors.
Airlines are closely monitored by the Transportation Department to ensure that no carrier is featured more prominently on electronic reservation systems, but such oversight does not extend to hotel and car rental companies.
Cendant has vehemently denied any intent to bias the Galileo system.
But analysts said the Cendant-Cheap Tickets deal raises its own set of knotty questions for consumers and Cendant competitors.
“It still remains to be seen how Cheap Tickets will work with brands beyond those owned by Cendant,” said Henry Harteveldt, senior analyst at Forrester Research. “If I’m Hertz or Budget and I’ve been doing great business with Cheap Tickets as an independent company, what happens if all of a sudden it’s owned by one of my major competitors? What assurances do I have the site will be run in an unbiased way?”
Cendant executives could not be reached immediately for comment. In a news release, Cendant Chief Executive Henry Silverman said, “The acquisition of Cheap Tickets supports our strategy of further penetrating the fee-for-service components of the travel industry.”
The deal for Cheap Tickets would add 1 cent to 2 cents to Cendant’s earnings in 2002 and 3 cents in 2003, the companies said. Cendant also will obtain $145 million in cash or cash equivalents as part of the deal, reducing Cendant’s net cash outlay for Cheap Tickets to about $280 million.
Cheap Tickets, founded in 1986, has contracts with dozens of airlines to sell non-published fares via the phone and Internet. It provides similar services for hotels, car rental agencies and cruise companies.
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Cheap Tickets jumped $4.48, or 38%, to $16.33 on Monday on news that it’s being acquired by Cendant for $425 million, or $16.50 a share, in cash. The shares, which reached a 52-week high of $16.55 on June 13, had been as high as $57 in 1999.
Source: Bloomberg News
