InterActive Pays $655 Million for Travel Site
September 22, 2003
InterActive Pays $655 Million for Travel Site
By SAUL HANSELL
Barry Diller's wanderlust continues. InterActiveCorp, the online conglomerate Mr. Diller runs, said yesterday that it had agreed to buy Hotwire.com, an online travel site, for $665 million in cash.
InterActive, already the largest online travel company, owns Expedia, a travel agency, and Hotels.com, which offers discount hotel rooms. The deal includes the assumption of $20 million in options and warrants.
Hotwire operates in a bargain-basement segment of the travel market known as the "opaque" market, because it sells airline tickets — as well as hotel rooms and rental cars — to people who do not know what company they will be traveling with until they have paid for their service. This allows airlines and hotels to receive some money for their unsold inventory without undercutting their published prices.
Hotwire was founded in 2000 by the Texas Pacific Group, an investment firm with a lot of travel experience, and a group of major airlines to compete with Priceline.com, the originator of the opaque model. Unlike Priceline, which asks customers to bid for tickets, Hotwire displays a set fare for a given itinerary.
Expedia tried several times to enter the market, first with a product that was similar to Priceline and then with one more like Hotwire. In both cases, it found that airlines did not want their deep discount fares promoted on the same site as their published fares.
As a result, InterActive concluded it needed a separate site. It decided that starting its own opaque site would take too long. It considered buying Priceline several times, but decided that Hotwire, which is somewhat smaller, offered a better opportunity.
"It may be counterintuitive, but there is more upside because Hotwire is not as well known, even though they are coming on strong," said Erik Blachford, the chief executive of Expedia. (Mr. Blachford is also being promoted today to run all of InterActive's travel businesses.)
Hotwire, which became profitable this year, had been preparing for an initial public offering, but intense courting by Mr. Diller persuaded it to sell for cash instead. Texas Pacific invested $100 million in cash and owns about a third of the stock, people involved in the transaction said. The airlines invested $10 million, but have a little more than half the stock, which they received in return for providing low fares to the company. Management and a few other parties own the rest.
After the acquisition, Hotwire will run as an independent unit, operating from its San Francisco offices. It hopes to expand rapidly through promotion on other InterActive sites, even though its inventory will not be mixed with the company's other travel offerings. "We care less about synergies and efficiencies of operating costs than we do about maintaining the differences among several brands," Mr. Diller said yesterday.
InterActive said that it expected Hotwire to sell about $700 million worth of travel and produce revenue of $110 million in 2003. |
