Buyout rumors:
businessweek.com
AUGUST 28, 2001
INSIDE WALL STREET ONLINE
By Gene Marcial
Will a Bidder Name a Price for Priceline.com?
With a merger wave hitting the online travel biz, this
battered-but-still-growing survivor could be a prime takeover target
Priceline.com is one of the many beaten-down
Internet stocks that's quite a ways from the
comeback trail. Shares of this e-commerce company
that offers "name-your-own-price" services on airline
tickets and hotel accommodations traded as high as
162 in April of 1999. They're now at 5.76, after
diving to just a little over a dollar on December 26,
2000.
Now, however, a recent rash of takeovers in the
online travel business has fueled speculation that an
acquisitive media company or another online services
company might soon try naming their own price for
Priceline.com (PCLN ). The fact that the company
surprised the Street on July 31 with exceptionally
strong second-quarter results has bolstered some
bulls' argument that it could, indeed, become a takeover target.
One investment adviser who focuses on takeovers notes that consolidation in
the online travel business has just begun. Two weeks ago Cendant Corp., (CD
), which owns and franchises a global network of travel-service companies,
agreed to acquire Cheap Tickets (CTIX ), an Internet travel agency, at $16.50
a share. And last month USA Networks (USAI ) acquired a controlling stake
in Expedia (EXPE ), a major Internet travel agency.
DESIRABLE FEATURES. The buyout pro notes that when an industry dominated
by just a few big players starts to see one or two buyouts, it usually ignites a
wave of mergers. This is particularly true when some of the players are partly
owned by larger companies, he adds.
Some analysts note that Priceline has been the subject of takeover speculation
for some time because of the steep drop in valuation and its strong brand
name. Thomas Underwood of Legg Mason, who rates the stock a buy, adds
that Priceline's unique way of selling travel bookings makes the company an
attractive merger candidate.
Underwood says USA Networks puchased Expedia's majority stake at about
13 times gross profit margins. If Priceline is valued at that ratio, he says, the
stock would be worth more than 11 a share. It's possible, he adds, that a large
media company, or Cendant, would opt to acquire Priceline at those multiples
not just because of its brand name but because it faces strong revenue and
earnings growth in the years ahead.
He's confident about that last point: In 2001, he expects Priceline to earn 9
cents a share, and 22 cents in 2002. And in 2003, he sees earnings of 35
cents. Underwood's 12-month price target for Priceline, based purely on
fundamentals, is 12 a share.
"POSITIVE STEP." He stresses that he still views it as a "speculative purchase"
and would encourage purchase only by investors "who can tolerate dramatic
share-price volatility and extraordinary levels of risk." Underwood says he's
concerned about a slowdown in leisure travel and an increasingly competitive
online travel market. But he believes that Priceline's "strong second-quarter
performance is a positive step in demonstrating the company's ability to thrive
despite macroeconomic challenges." Priceline, which posted revenues of $1.2
billion in 2000, is expected increase revenues to $1.3 billion in 2001.
Priceline beat all kinds of key metrics and estimates by posting earnings of $2.8
million, or 5 cents a share in the second quarter, vs. consensus estimates of one
cent a share. Revenues for the quarter jumped 35%, to $365 million, from the
first quarter, and rose 4% from the year-ago period. Gross margin was a
record 16.5%.
SHADOW PLAY? Some 30% of Priceline's stock is owned jointly by Cheung
Kong Ltd. and Hutchinson-Whampoa. There are rumors, which both
companies deny, that they might sell this huge stake. Delta Airlines, which
owned some 10 million Priceline shares, says it has recently sold a substantial
majority of its holding.
Some takeover investors speculate that the Delta shares may have been
acquired by a group that's accumulating Priceline on behalf of a potential buyer.
And the Cheung Kong/Hutchinson-Whampoa stake -- if it were to be sold --
could end up with this same group. This could be an interesting trip. |
