TRAVEL: Expedia Dumps eLong, Ctrip Takes Over
Bottom line: Ctrip’s purchase of a controlling but minority stake in eLong is the latest in a string of similar equity tie-ups by the company, none of which looks very exciting because these new partners aren’t interested in working closely with Ctrip.
A longtime but largely empty cross-border Internet partnership has finally come to an end, with word that US online travel agent Expedia (Nasdaq: EXPE) has dumped its stake in Chinese laggard eLong (Nasdaq: LONG). In an interesting twist to the story, the group buying eLong includes Chinese industry leader Ctrip (Nasdaq: CTRP), which seems to be buying small stakes in many of its rivals these days without buying anyone outright.
Personally speaking, I don’t see much reason to get excited about Ctrip’s latest buy, even though investors seemed to think differently. eLong is a perfect example of a company that had huge advantages due to its early arrival to the online travel market and longtime partnership with Expedia. And yet it failed to parlay any of that into a market leading position, and instead has become an afterthought as it got overtaken by younger, more innovative companies like Tuniu (Nasdaq: TOUR) and Qunar (Nasdaq: QUNR).
Both Expedia and Ctrip put out statements on the deal, which has seen the former sell its entire 62.4 stake in eLong for $671 million, valuing eLong at just over $1 billion. (Expedia announcement; Ctrip announcement) The buyer group includes Ctrip, along with Keystone Lodging Holdings, Plateno Group and Luxuriant Holdings Ltd. Ctrip received a controlling 36.7 percent stake in eLong, paying $400 million for the shares.
Both Ctrip and Expedia said they will continue to cooperate following the deal, in what looks like a largely symbolic and face-saving statement for Expedia, which never got much from the eLong partnership. Expedia first bought a stake in eLong more than a decade ago, and gradually built it up over time to its majority controlling position. But eLong never really gained much traction in China, and was overtaken in the last few years by more aggressive younger rivals.
eLong shares jumped 9 percent after the deal was announced. But before that the company had a market value of just about $750 million, a figure that has remained relatively unchanged since its New York IPO back in 2004. By comparison, the much younger Qunar is worth $6.3 billion, even though it’s losing big money. Even the recently listed and much younger Tuniu, which is also losing money, is worth $725 million.
The investment marks the latest in a recent string for Ctrip, which has a large cash pot for such acquisitions but hasn’t found enough places to put all that money. The company was reportedly in talks last year to merge with Qunar, easily its biggest rival. But that deal ultimately fell apart, most likely over issues of who would be in control of the new company. Since then Ctrip has purchased small stakes in Tongcheng and Tuniu, and last year it also entered a strategic tie-up that saw it sell 10 percent of itself to US giant Priceline (Nasdaq: PCLN). (previous post)
All of these tie-ups are starting to look a bit confusing and unfocused to me, which isn’t a good sign for Ctrip. It’s clear why the other companies are letting Ctrip invest in them. Their motivation is partly for the money, but also more for the association with the Ctrip name, which adds to their credibility and ensures Ctrip won’t compete with them directly in their niche areas.
But for Ctrip, the only thing these tie-ups bring is minority stakes in companies that don’t seem to have very much interest in working closely with Ctrip and even less interest in being acquired. Investors may not agree with me, as they clearly liked the eLong deal, bidding up Ctrip shares by nearly 18 percent after it was announced. But I honestly don’t see this particular deal going anywhere. And even if Ctrip did eventually succeed in buying eLong outright it wouldn’t really matter, since eLong long ago lost its position as a market leader and innovator.
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