JANE LEVERE NEW YORK
Seismic shifts have occurred in US travel distribution in recent weeks, with the sale of number two on-line travel agency Expedia to USA Networks, and the earlier acquisition of Galileo, the second largest global distribution system, by the giant Cedant group.
USA Networks, which is involved in both entertainment and interactive businesses, purchased Microsoft's controlling interest in Expedia, paying for it with a combination of stock and other securities. Analysts estimated the value of the deal at approximately $1.3 billion.
USA already has numerous travel-related holdings. The company owns controlling interests in hotel consolidator Hotel Reservations Network and Ticketmaster, a ticket brokerage which itself owns Citysearch, an on-line, urban information service.
It also recently purchased National Leisure Group, an on-line cruise and vacation package company. Armed with these holdings, USA announced plans to launch a tourism-oriented cable television channel that will also sell travel.
In discussing the deal, Rick Belluzzo, president and chief operating officer of Microsoft, said that Expedia would continue to be a "strategic partner for MSN and Microsoft, while USA Networks can provide the breadth and depth in the travel and media industries that will help spur Expedia's future growth."
Robert LaFleur, who follows Expedia for Bear Stearns, predicted the sale would take Expedia "to the next level, beyond being an Internet site where you can buy travel. They will integrate entertainment, media, commerce and travel."
Meanwhile, Galileo goes to Cendant, whose businesses include: Howard Johnson; Ramada and Days Inn hotels; the Avis car rental company and Century 21, the real estate company. It purchased Galileo, which has been on the block since last autumn, for $2.9 billion in cash and stock. Cendant will also assume $600 million of Galileo net debt.
Announcing the deal, Henry Silverman, Cendant's chairman, called Galileo's "fee-for-services business model, customer relationships and customer base highly complementary to Cendant's," adding that "Galileo's major presence in air travel bookings and substantial international reach are an excellent strategic fit with Cendant, and will facilitate our ability to capitalize on future growth opportunities within the travel industry."
There was scepticism on Wall Street about the benefits Galileo would actually bring to Cendant, which is reportedly negotiating to also purchase Worldspan.
Jennifer King, who follows the global distribution industry for for Merrill Lynch, predicted Galileo's sale would "not cause any big change to the competitive landscape. It remains to be seen if Cendant takes it up a notch in the travel agency space by increasing incentives."
Source: Airline Business
