Antitrust unlikely to halt Expedia/Orbitz deal
Antitrust unlikely to halt Expedia/Orbitz deal
13 FEBRUARY 2015 3:38 PM
In December, Expedia’s Dara Khosrowshahi said antitrust issues would prevent an acquisition of Orbitz. Today, Expedia officials are singing a different tune.
BELLEVUE, Washington—Expedia, Inc. President and CEO Dara Khosrowshahi appears to have done an about-face as it relates to his thoughts on whether antitrust issues could trip up his company’s planned buy of Orbitz Worldwide.
Khosrowshahi addressed the possible antitrust issue head-on during a town hall discussion at the Expedia Partner Conference in December.
“They are doing as well as they can, but they are simply subscale,” he said. “They’ll have a hard time against us and some of the other players out there. I don’t think we could make a deal happen because of antitrust. I would assume nothing happens, but you never know.”
When asked at that conference in December if the company was considering making a deal for Orbitz, Khosrowshahi responded: “We can’t really answer that question.”
Fast forward to this week, when on Thursday Expedia announced it entered into an agreement to buy its online travel agency rival for approximately $1.6 billion. During a conference call with analysts, Mark Okerstrom, Expedia’s CFO and executive VP of operations, backed the company away from Khosrowshahi’s earlier comments. He reminded the analysts on the call that the sector in which Expedia plays is a $1.3-trillion industry. Expedia as of Friday afternoon had a market capitalization of approximately $11.4 billion.
“Even though in that (OTA) segment, we are relatively large, in the grand scheme of things we are only a small player and we think our overall share is single digits,” he said, reminding analysts of budding interest from 800-pound gorillas such as Google. 
“So we feel good about the prospects,” he said of the likelihood the deal would go through. “Obviously, we will be engaged in many (conversations) during the process, but we are very optimistic.”
Sarah Gavin, head of communications at Expedia, said when Khosrowshahi made his initial comments in December, the company remained unsure if the Orbitz deal would progress. Executives also “didn’t want to show our hand.”
With the rise of metasearch and other companies entering the digital travel sector, Gavin agreed that the sector is becoming increasingly competitive.
“You have competitors of every possible type,” she said, adding that the U.S. Federal Communications Commission will likely be the body to decide the antitrust issue.
Analyst reaction
Timothy Lee, an analyst with Fitch Ratings, said he expects the deal to go through. He said regulators could look at the overall distribution landscape, rather than just the size of Expedia, in determining whether to give their stamp of approval. If they take that tack, then antitrust officials would look at the emergence of deep-pocketed companies such as Google entering the space and view the Expedia/Orbitz deal in that context.
“I think the regulators would think it is a changing industry and would take a broader view,” he said.
In an email, Brian McGill, an analyst at Janney Montgomery Scott, said the deal is likely to be closely scrutinized.
“Tough to say whether they look at it on OTA share approaching 75% or on total travel,” he wrote. “You can go to the direct air or hotel site and don’t need to use an OTA.
“(I) have heard early indications (that) people think it (will go) through,” he said.  
Lee said there is a precedent for U.S. regulators taking a broad view in the travel sphere when considering antitrust. When cruise line Carnival Corporation acquired Princess Cruises, regulators took a broader view inclusive of all travel accommodation providers.
 Okerstrom alluded to the overall size of the space when he spoke with analysts Thursday.
“I would just remind everyone that this is an absolutely huge industry,” he said. “It is a $1.3-trillion industry that is growing very quickly.”
Lee said the changing nature of online travel will play a role in the regulators’ decision. “They will weigh that when looking at the deal,” he said.
Breakup fee
In a United States Securities and Exchange Commission document filed Thursday, Expedia disclosed it will owe a $115-million breakup fee to Orbitz if the deal is waylaid because of antitrust concerns.
A reverse breakup fee also is detailed, wherein Orbitz would owe Expedia $57.5 million if it accepts a buyout offer from another suitor. 
Khosrowshahi acknowledged during the conference call that other parties were involved in the bidding for Orbitz.
Expedia did not list a proposed closing date for the transaction in its announcement of the deal. In addition to regulatory approvals, the transaction is also subject to approval by a majority of the shareholders of Orbitz.
Hotel News Now’s Patrick Mayock contributed to this report.

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