Priceline Group Inc. plans to invest $500 million investment in Chinese online travel company Ctrip.com International Ltd., as the online reservation company seeks a larger footprint in the world's biggest outbound-travel market.
Under the new deal, Priceline's Booking.com hotel-booking site will advertise Ctrip's inventory of hotels in China. Ctrip, meanwhile, will be able to offer its users a wider array of deals from Priceline's platforms including Booking.com, Agoda.com for smaller hotels, OpenTable and rentalcars.com.
"This looks like a financial and strategic alliance of two champions," said technology hedge-fund manager Richard Ji of All-Stars Investment.
The deal helps Priceline, the world's largest online reservation company by market capitalization, root itself in a country poised to surpass the U.S. as the world's top business-travel market this year. With a broader portfolio of inventory to offer its users, Ctrip hopes to siphon business from travel agents, the company said. While about 40% of travel bookings in the U.S. and Europe are done over the Internet, in China, that level is just 15%.
"Our biggest competitors are the offline travel agencies," said Oliver Hua, managing director of Asia at Booking.com. "We want to offer better selection and value to lure Chinese outbound travelers online."
Priceline said Wednesday that it has agreed to invest $500 million in Ctrip through a convertible bond.
As part of the deal, Priceline can buy Ctrip shares on the open market over the next year, and amass as much as 10% of the company's shares outstanding. Upon purchase of the bond, Priceline can name an observer to Ctrip's board of directors.
"We have very strong services in China, which Priceline's overseas clients can use," said Jane Jie Sun, Ctrip's chief operating officer. "Priceline will provide the best terms to our clients."
Priceline has an existing partnership with Ctrip, signed in August 2012, that allows Ctrip's hotel-reservation service to access Booking.com's portfolio of world-wide hotels for outbound Chinese travelers.
Currently, Ctrip's overseas market accounts for 10% of its revenue. The company expects that proportion to double in six years, said Ms. Sun. She said she expects Ctrip's revenue to increase tenfold by 2020, based on annual revenue growth rate of 45% a year, at which point she expects Ctrip to vault ahead of Priceline to become the world's most valuable online travel company. Ctrip's current market capitalization is $8 billion, compared with Priceline's $67 billion.
The Boston Consulting Group estimates that 49% of all passenger traffic globally will be within Asia or between Asia and the rest of the world by 2030. Chinese travelers will make up about 40% of all Asian outbound international travelers by that year, the consultancy says.
Ctrip and Priceline's tie-up came amid a string of others in China's travel sector. Expedia Inc. has a 65% stake in Chinese travel site eLong Inc. Chinese travel-site operator Qunar.com has benefited from the traffic sent by its investor, Chinese search engine Baidu Inc.
Source: Wall Street Journal by Wei Gu
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