eLong Shake-Up: Buy-Out Ahead?
A new management shakeup in the top ranks of eLong (Nasdaq: LONG) didn’t excite investors too much, but hints that something is happening behind the scenes at this online travel laggard controlled by US giant Expedia (Nasdaq: EXPE). The shakeup has seen eLong’s CFO and COO both resign, though the company’s CEO is staying in his current position, at least for now. Rumors circulated earlier this year that a buyout could be coming for eLong from sector leader Ctrip (Nasdaq: CTRP), though such a deal never came.
Those earlier talks, which came in late June, sparked a 70 percent jump in eLong’s thinly traded stock in the following weeks, as investors hoped for an offer containing a big premium. (previous post) Shares have given back some of the gains since then, but are still nearly 50 percent above where they were before the rumors. By comparison, this latest report of a shakeup in the company’s top management ranks left investors unimpressed, with eLong’s shares unchanged in the latest trading session.
Frankly speaking, I’m not sure what exactly Expedia and Tencent (HKEx: 700), eLong’s 2 largest shareholders, are trying to do with this company. eLong was one of the sector’s earliest players, but despite longtime backing by Expedia never managed to seriously challenge Ctrip’s dominance. More recently, the company has been eclipsed by several much younger rivals, including recently listed Qunar (Nasdaq: QUNR) and Tuniu (Nasdaq: TOUR). Even after its share-price jump, eLong’s market value stands at just $670 million, about the same as Tuniu and far less than the $3.4 billion and $8 billion for Qunar and Ctrip, respectively.
According its announcement, eLong’s CFO Luo Rong and its COO Jason Xie will leave the company on September 30 for unspecified reasons. (company announcement; Chinese article) Company insider Philip Yang was named as new CFO, though no new COO was mentioned. CEO Cui Guangfu made a brief statement with the announcement, indicating he isn’t going anywhere just yet.
eLong has long been controlled by Expedia, which owned more than 82 percent of the company at the end of last year. Tencent controlled much of the company’s remaining shares after buying 16 percent in 2011. With such a small portion of eLong’s shares publicly traded, it’s a bit unclear why Expedia and Tencent didn’t make a privatization bid for eLong long ago and try to fix the company out of the public eye. I might have expected Expedia to follow the example of other big names like Amazon (Nasdaq: AMZN) and eBay (Nasdaq: AMZN), which each purchased much smaller China-based rivals and then later rebranded them under their own names.
Of course, Chinese Internet historians will know that eBay’s move was a spectacular failure, and Amazon’s drive also has yet to bear any major fruit. Still, it seems a bit pointless for Expedia to keep letting eLong operate independently when its local management, despite its long history and ties to the US giant, clearly doesn’t have the savvy to compete with either Ctrip or the newer rivals.
All of that brings me back to my original point, which is what this latest management shuffle might mean, if anything. I suspect that Expedia may be tiring of eLong and doesn’t seem to want to privatize the company. That means that perhaps a sale looks like the best option. If that’s the case, we could see the cash-rich and acquisitive Ctrip come back into the picture. I would put the probability of such a Ctrip bid for eLong at around 30 percent within the next year, with the broader possibility of a sale to any buyer or privatization a bit higher at 60 percent.
Bottom line: A shakeup in the top management ranks of eLong hints that a privatization bid or company sale could be coming, with Ctrip as the most likely buyer.
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