Expedia sells stake in Chinese travel service

Expedia sold its entire stake in eLong, a Chinese travel service, to a group of businesses based in China for roughly USD 671 million. 

The news sent shares of the online travel company up more than 5 percent in midday trading Friday. 
 
Before the market opened, Bellevue, Washington-based Expedia said that it had sold its 62.4 percent share in eLong to a group that includes Ctrip.Com International Ltd., Keystone Lodgings Holdings Ltd., Plateno Group Ltd. And Luxuriant Holdings Ltd. The company said the transaction closed Friday. 

Separately, Shanghai-based Ctrip, said it had acquired a 37.6 percent stake in eLong for roughly $400 million. Expedia’s ties to eLong date back to 2004, when its parent company, IAC/InteractiveCorp, bought 30 percent of the company. 

IAC spun off Expedia with eLong the next year, and Expedia later acquired a larger share of eLong in an attempt to profit from a growing appetite for travel in China. 

But eLong eventually became a drag on Expedia’s profits. 

In a note to clients, Scott Devitt, an analyst at Stifel Nicolaus & Co., said eLong took a USD 33.3 million cut out of Expedia’s first-quarter adjusted earnings before expenses. He estimates the sale of eLong should boost Expedia’s adjusted earnings before expenses by USD 85 million this year. 

Devitt called the move “a positive step for Expedia, as the eLong subsidiary was facing intensifying competitive pressure and increasing investments to maintain bookings growth.” 

Until the announcement on Friday, Expedia had been more of a buyer than a seller. In February, it announced plans to buy Orbitz, a rival travel site, for approximately USD1.33 billion. 

In January, it announced an agreement to buy Travelocity for USD280 million, months after saying that it would spend USD658 million on Australia’s Wotif.Com Holdings Ltd. Wotif gives Expedia a broader entry into the Asia-Pacific region. 

Expedia’s stock was up USD5.84 to USD111.73 in midday Friday after rising to a 52-week high of USD115 earlier in the session. Over the past year, its shares have traded as low as USD70.19, according to the data provider FactSet. 

Ctrip’s US-listed depository shares soared USD9.52, or 13 percent, to USD81.49.