Popular travel site Expedia has had a busy year so far, in which the company acquired Travelcity in February for $280 million followed by Orbitz a week later for $1.6 billion. The company tired of acquisitions is now divesting it big asset eLong, which has not generated profit for long, for $671 million to its main rival Ctrip and other investors.
eLong, which was part of Expedia until now, has in the past years worked on growing its hospitality and lodging business and has crossed 34 million mark room nights until December 2014. Expedia held a major portion of 62.4% ownership which has been sold to Chinese travel firms that consist of the eLong’s arch rival Ctrip, hospitality company Keystone Lodging and Platen Group and investment company Luxuriant Holdings. Ctrip has obtained 37.4% of the holdings for around $400 million.
Though why Expedia gave up on eLong business is not out formally, the reports and evidences suggest that it was a financial thing. ELong has not generated profit in long time and recorded $33 million lost in the recent Q1 2015. Knowing that the chances of the making money out of it is almost nil, the company decided to divest the business. Soon after the divestment, the company’s (Expedia’s) share rose 7%. On the announcement of Ctrip’s acquisition, eLong’s share surged 8.67%, closing at $22.44 on Friday. On the contrary, its rival Qunar’s shares dropped 1.04% to reach $52.34 on the NASDAQ.
“Ctrip is not going to take over 100% stake in eLong and will keep it as a public company in order to gain approval from the regulatory body. There are concerns about the anti-competition charge by the regulatory body so they keep talking to various investors, such as Wanda, Tencent etc. But none of them are interested in minority stake. But in case of hotel chain Plateno Group, the organization has its own strategic thinking about this deal. So that’s why they have gone ahead with this deal,” explained Charlie Li, founder and CEO, TravelDaily China.
However, this divestment would leave Expedia no partner in China. To overcome this issue, Expedia has teamed up with Ctrip. The statement revealing their deal does not hold any clear information how they are planning to work. The statement mentions, “Expedia and Ctrip have agreed to cooperate with each other to allow their respective customers to benefit from certain travel product offerings for specified geographic markets.”
After the Expedia moves away from eLong by giving of its equity stake, eLong is expected to focus mainly on the online hotel booking segment alone. It is expected that priceline group’s booking.com’s model would be replicated by eLong.