(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.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- 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
- 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)
Keywords: BREAKINGVIEWS PRICELINE/KAYAK
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