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Priceline to Buy Kayak

It looks like the well-known Priceline Negotiator has struck yet another deal.

In an effort to enhance its already large customer base and stave off possible competition, the prominent online travel agency Priceline.com Inc. announced its planned purchase of travel comparison site Kayak Software Corp. yesterday.

Priceline will purchase  the eight-year-old company for $1.8 billion in cash and stock. The two companies will operate independently and Kayak will be known as a Priceline Group company. The current Kayak management team will continue to run operations.  Both boards unanimously approved the deal and the transaction is expected to close in the first quarter of 2013.

During a conference call Thursday with analysts, Priceline Chief Executive Officer Jeffery Boyd said, “Our intention is for Kayak to be operated independently under the leadership of existing management, as with our other brands, with a primary focus on building value for its customers and advertising partners.”

Kayak shareholders will be given $40 a share, according to the company, representing a 29 percent premium over the closing price of $31.04 yesterday in New York. It included approximately $500 million in cash and $1.3 billion in equity and assumed stock options.

While Priceline gives travelers an opportunity to evaluate travel costs and book hotels, air travel, car rentals and vacations, Kayak is known in the market as more of a referral service to travel agents and/or airlines. Both companies are located in Norwalk, Connecticut.

Kayak acquisition expected to increase Priceline’s strength in industry

Kayak is considered an excellent acquirement for Priceline as it processed 302 million searches in the third quarter of 2012 across its web and mobile products, a 31 percent increase from one year earlier. In the July initial public offering (IPO), the company raised $91 million by selling 3.5 million shares at $26 apiece.

Since Priceline already has divisions for rental cars and hotels, including 270,000 participating hotels worldwide, analysts believe this acquisition will allow Priceline to corner the market in the online travel agency industry.

Dan Marcec, an analyst at EMarketer, said it makes sense that Priceline and Kayak would want to work together because they have different strengths and objectives.

Priceline and Kayak are two of the largest online travel companies. Current competition includes Google Inc. and Microsoft Corp., which have both made efforts to grow their businesses. Priceline’s top competitors in airline and hotel bookings have remained Expedia and Hotwire.

EMarketer anticipates online travel sales could reach $151.9 billion by 2016 – an increase of over $44 billion from 2011.

Law firms investigating possible breach in fiduciary duty

According to a statement made after the acquisition announcement, the law firm Levi & Korsinsky is currently investigating whether there is a possibility of breach of fiduciary duty to stockholders and other violations of state law in connection with the sale of the company.

The investigation centers on whether the board of directors failed to “adequately shop the company before entering the transaction” and whether Priceline.com is underpaying for Kayak shares, thereby harming Kayak stockholders.

Another law firm, Newman Ferrara LLP, is also investigating whether all steps were taken to ensure Kayak shareholders will receive the greatest value for their shares of common stock.

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].

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    Sources:

    1. Jansen, B. (2012, November 8). Travel site Priceline to buy comparison site Kayak. USA Today. Retrieved from http://www.usatoday.com/story/travel/2012/11/08/priceline-buys-kayak/1693029/
    2. Levy, A. & Kucera, D. (2012, November 9). Priceline Buys Kayak for $1.8 Billion Expanding in Travel. Bloomberg. Retrieved from http://www.bloomberg.com/news/2012-11-08/priceline-buys-kayak-for-1-8-billion-expanding-in-travel.html
    3. Levi & Korsinsky, LLP. (2012, November 8). Shareholder Report: Levi & Korsinsky, LLP Announces Investigation in Connection with the Sale of Kayak Software Corporation (KYAK) and PSS World Medical, Inc. (PSSI). The Sacramento Bee PR Newswire.