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Priceline Buying TripAdvisor 'May Make Sense,' But Is Still 'Unlikely'

GOOG, TRIP, EXPE | September 12, 2016

Tripadvisor Inc (NASDAQ: TRIP) remains a standout within the online travel space as a stand-alone company in the sector that has seen heightened M&A activity over the past few years.

However, according to Nat Schindler of Bank of America, speculation of a potential deal involving the sale of TripAdvisor has "increased," but despite the 27 percent decline in the stock year-to-date, "some buyout optionality is priced in."

Schindler added that prior rumors of an acquisition by Priceline Group Inc (NASDAQ: PCLN) "may make sense," but the deal is still nevertheless "unlikely."

Schindler continued that Priceline could find TripAdvisor's 351 million monthly active user base to be attractive. In addition, Priceline could combine TripAdvisor's user-generated reviews, its own core hotel and airline bookings and OpenTable's restaurants booking to create a "one-stop travel destination on the web."

Priceline could also make itself less dependent on Google (Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL)) for traffic by acquiring TripAdvisor, which is in the process of transitioning from a meta-search engine to a transactional hotel booking site.

Finally, an acquisition of TripAdvisor could help expand TripAdvisor's Instant Book business and leverage its hotel relationships to sign on more Instant Book partners.

Why 'Unlikely?'

Schindler went on to assume that any price tag on an acquisition would come at a 25 percent premium to TripAdvisor's $9 billion market cap. Priceline could fund the deal through a stock raise or low-cost debt.

However, an acquisition of TripAdvisor through debt would be 1 percent dilutive to Priceline's 2017 earnings, and an equity financed transaction could be 6 percent dilutive.

By comparison, Priceline could raise debt at a similar rate, buy back its own stock and generate a transaction that would be accretive to its earnings per share by 6 percent.

In addition, TripAdvisor is already trading at a 30x P/E ratio, which is a premium to Priceline and Expedia Inc (NASDAQ: EXPE) stocks that are trading at 17–18x.

Finally, a combination of Priceline and TripAdvisor may not go over well with regulators who are "likely to push back" given the "already largely consolidated" online travel space.

Schindler rates TripAdvisor at Underperform with an attached $41 price target.

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