(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Rob Cox
NEW YORK, Nov 9 (Reuters Breakingviews) - Conventional wisdom has long held that investors in online businesses behave differently from the rest of the shareholding masses. They're more willing to look beyond traditional metrics, like price-to-earnings ratios, for instance, or are more open to betting on a founder's “vision,” however grandiose. It's becoming increasingly evident, however, that investing in the Internet no longer grants a free pass to behave stupidly. The market reaction to Priceline's (PCLN.O) $1.8 bln deal to buy rival travel website Kayak Software KYAK.O is a case in point.
The transaction announced on Thursday offers no clear synergies. There's also no obvious industrial logic, except insofar as both companies deal in travel on the Web. So it’s heartening to see Priceline owners thwacking the company for its adventurism. They erased up to $10 a share, or about $500 million, from the buyer's market value. Though it may not seem like much in the context of a $31 billion company, closer scrutiny says otherwise.
The theory of efficient markets asserts that the fair value of a company is what investors are willing to pay for it based on all publicly available information about its prospects. But investors aren't buying Priceline's arguments about the deal's charms. They've eradicated from the company's valuation nearly all the control premium being forked over to Kayak's owners. That's a rational act signifying that shareholders are treating Priceline as a real investment, not some webby enchantment that exists outside the conventional rules of finance.
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- Priceline.com agreed on Nov. 8 to buy Kayak Software in a deal valued at about $1.8 billion. Priceline is offering $40 a share for Kayak, a 29 percent premium to the company's closing price of $31.04. The deal consists of $500 million in cash and $1.3 billion in equity.
- Reuters: Priceline to buy Kayak Software for $1.8 billion [ID:nL1E8M8J9I]
- Priceline.com release: r.reuters.com/pet83t
- For previous columns by the author, Reuters customers can click on [COX/]
(Editing by Jeffrey Goldfarb and Emily Plucinak)
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