Mere days after announcing a US$4.5 billion buyout effort, USA Interactive is backing away from the deal, citing sour market reaction to the strategy.
The company intended to acquire all the outstanding shares of its subsidiaries Expedia, Hotels.com and Ticketmaster. But investors expressed wariness, sending shares down after the plan was unveiled.
“It’s interesting that they would pan it,” Morningstar.com stock analyst George Nichols told the E-Commerce Times. “Often, a move like this would help the stock because investors dislike complex companies. We’ve seen that with companies like AOL, which have a bunch of smaller firms under them. With too many subsidiaries, a company can be hard to value.”
Each buyout was to involve an exchange of stock. USA had valued each of the subsidiaries at a 7.5 percent premium over its closing price.
Who Will Blink First?
After the deal was scuttled, USA released a statement about what had happened.
“Our announcement began a process that is out in the open, totally transparent and that has, we believe, an inevitable conclusion: the unification of USA with strategies and incentives totally aligned,” the company said in the statement.
“We recognize, however, that it will take some time for everyone involved to digest all the information, understand all the issues, and work through the process.”
Each of the targeted companies has appointed a special committee to evaluate the proposal.
“They’re probably trying to see if they’ll get a better deal if they hold out,” Nichols said.
Taking full control of its high-profile subsidiaries would streamline USA’s financial structure. USA chairman Barry Diller has expressed enthusiasm for the move, saying it would make the enterprise more cohesive, aligned and integrated.
Specifically, the deal would simplify the corporate structure and help remove roadblocks from the decision-making process.
One other compelling outcome for Diller could be a nicer view from the corner office.
“If they bought out the subsidiaries,” Nichols said, “they wouldn’t need an outside director. Therefore, Diller could exert greater control.”
Share and Share Alike
Another benefit of the plan might be information swapping among the three e-commerce firms.
Jonathan Gaw, research manager at IDC, told the E-Commerce Times: “You can draw connections among these companies. It makes sense to bring them together, because you want to be able to use similar technology platforms and leverage customer databases.”
Even though the three companies sell different items, they seem to do so in the same way, which could prove valuable if they were brought together under the same umbrella.
“You can always make the argument,” Gaw said, “that selling a hotel room over the Internet isn’t significantly different from selling court-side Lakers seats.”
The buyout was unveiled just days after USA announced plans to purchase Interval International, a provider of time-share travel arrangements, for $578 million.
Under the initial terms of the deal, Expedia shares would have been worth $76.86, Hotels.com worth $51.48 and Ticketmaster worth $22.99.
Some analysts said the prices proposed by Diller represented a great deal for USA.
“The companies are substantially undervalued,” Nichols said. “They’d be getting good assets on the cheap, but that’s not surprising. Diller rarely overpays.”
Diller has stated that USA will not increase the conversion ratios from 7.5 percent.