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Stay Away from Expedia's Buyout of HomeAway By Chris Laudani | Nov 05, 2015 | 11:10 AM EST

Late Wednesday, hotel and travel site Expedia (EXPE - Get Report) announced that it had reached an agreement to buy "alternative accommodation" site HomeAway (AWAY - Get Report) for $3.9 billion. While this is an attempt to fill a hole in Expedia's strategy, this is a risky deal since both companies are losing market share to disruptive startup Airbnb. I believe the deal will wreck the combined company's margins.

Expedia agreed to pay $10.15 in cash plus 0.2065 shares for each HomeAway share. The total price tag works out to $3.9 billion. The deal is an 18% premium over HomeAway's last closing price of $32.04. Expedia has been keeping an eye on the alternative accommodation market for the past few years. The company has been building a relationship with HomeAway for the last two years. Expedia has been listing HomeAway's vacation rentals and second-home listings next to its hotel listings. Buying HomeAway allows Expedia more control over the market for apartments and vacation homes.

Expedia's listings are mostly hotels, and the deal should help it compete with vacation-based websites like Priceline (PCLN - Get Report) and TripAdvisor (TRIP - Get Report)...


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