Hungry Ctrip Eyes Group Buying Sites

By newsdoug on May 15, 2014

Leading online travel agent Ctrip (Nasdaq: CTRP) is generally regarded as one of China’s best run and most focused Internet companies, which is why new reports that it’s chasing a tie-up with 2 of the nation’s top group buying sites look a bit worrisome. The company is sitting on top of a huge cash pile, worth nearly $2 billion at the last check in March, and is looking increasingly desperate for places to spend the money. It has already been spurned by some of the travel sector’s most likely acquisition targets, which is probably why it’s now looking elsewhere for places to invest its treasure chest.

According to the latest reports, Ctrip is in talks with Meituan, China’s leading group buying site, as well as Dianping, a restaurant ratings site that is often likened to China’s equivalent of Yelp (NYSE: YLP). (English article) The reports indicate the investment would likely be a minority one, and would complement Ctrip’s own efforts to build up its hotel group buying business. Ctrip already works with Dianping on a marketing basis to promote restaurants near hotels booked on its site.

Word of these talks comes just a week after Ctrip was apparently rebuffed in its efforts to buy a stake in online travel site Tuniu (Nasdaq: TOUR), despite talk that it would make such an investment before Tuniu’s Nasdaq IPO. Last month Ctrip did manage to invest $200 million for 30 percent of Tongcheng, another up-and-coming online tourism site. (previous post) But even after spending that amount, which was probably financed at least partly with new debt, Ctrip would still have more than $1.5 billion in cash.

Of course the big prize would have been a merger with Qunar (Nasdaq: QUNR), Ctrip’s largest rival, which itself held an IPO late last year. Talks for such a merger were reportedly happening earlier this year, but then stalled over issues of control. As a result, a deal that could have cost Ctrip $1 billion or more now looks to be dead.

Ctrip is China’s oldest online travel site and easily its largest, with a market value of $7 billion — more than twice the size of Qunar. It rose to prominence on its ability to stay focused on its core business of providing travel products and services, unlike many of China’s other Internet companies that have ventured into areas far from their original strengths and are now struggling to integrate those businesses.

But at the same time, Ctrip’s fiercely independent managers have had a much more difficult time finding good strategic partners, which includes acquisition targets. The company failed to find synergies with leading Japanese e-commerce site Rakuten (Tokyo: 4755) after an earlier equity tie-up between the pair, and the failed Qunar talks also testify to the company’s inability to work closely with other partners.

These 2 new potential tie-ups both have some synergies, since restaurants are one of the biggest areas of the group buying business and hotels is also a growing area. But these particular targets by Ctrip also have just the slightest overtones of desperation. Dianping already sold 20 percent of itself to Internet giant Tencent (HKEx: 700) earlier this year, and Meituan also looks determined to stay independent following earlier recent reports that it had raised $100 million in new funds.

A Dianping tie-up looks the least likely in this scenario, since it would force Ctrip to share ownership of the company with Tencent, creating a strange trio of very different Internet bedfellows. Meituan could be a stronger possibility, but still looks like a dangerous diversion from Ctrip’s core travel business. At the end of the day, perhaps Ctrip should scale back its M&A aspirations, and use some of its cash to build its own new businesses as it fends off fierce competition in China’s online travel market.

Bottom line: Ctrip’s talks to buy a major group buying site look like a worrisome diversion from its core online travel services, and also hint of desperation as it looks for M&A targets.