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Aiming to penetrate the lucrative online travel market,
Cendant (NYSE: CD)
announced Monday that it is set to acquire Cheap
Tickets (Nasdaq: CTIX) in a deal 
valued at US$425 million, or $16.50 per share.
"Cheap Tickets is unique among its principal competitors in that it is successful in both online and offline markets," said Cendant chairman, president and chief executive officer Henry R. Silverman. "The acquisition of Cheap Tickets supports our strategy of further penetrating the fee-for-service components of the travel industry."
The deal gives Cendant access to Honolulu, Hawaii-based Cheap Tickets' online customer base of nearly 14 million registered users. In addition, Cendant said the purchase will provide its suppliers with more cost-effective distribution both online and offline.
Looking to Expand
In conjunction with its purchase of Cheap Tickets -- which sells discount travel tickets and hotel reservations through its retail outlets, over the Internet and by phone -- Cendant said it expects to strike an agreement with its affiliate, Travel Portal (TPI), that will allow TPI to integrate all of Cendant's Internet operations.
TPI, a portal that will supply consumer access to lodging, timeshare and rental car inventory as well as vacation packages, is slated to be launched in the coming months.
As part of the arrangement, Cendant will retain Cheap Tickets' offline booking business, including all call center operations, as well as its non-Internet based revenues, licensing fees and call center services charges. TPI will recognize all revenues for travel booked via the Web.
No. 3 and Rising?
With the launch of TPI, Cendant said it will become the third largest Web travel network, claiming more than 6 million unique monthly visitors.
Cendant is also working to complete its $2.9 billion purchase of another travel services provider, Galileo International, which operates Trip.com and TravelGalileo.com.
Cendant is a multinational giant with businesses in the real-estate, travel, financial services and automobile markets, including Avis, Century 21, Coldwell Banker and Howard Johnson.
Numbers Game
Factoring in the $145 million in excess net cash and cash equivalents that Cheap Tickets had on hand as of June 30th, New York City-based Cendant said the net purchase price totals approximately $280 million.
According to Cendant, the acquisition, which is slated to close in the fall, will add roughly 1 cent to 2 cents per share to its earnings in 2002, and 3 cents in 2003.
Investors seemed to be buoyed by the news. In early trading Monday, Cheap Tickets stock climbed $4.47 to $16.32, representing a nearly 38 percent leap. Cendant was up 3 cents to $19.23.
Bumpy Ride
Founded in 1986 as a traditional travel agency, Cheap Tickets launched its online site in October 1997. Since stepping onto the Web, Cheap Tickets has derived 40 percent of its gross travel bookings from the Internet channel, the company said.
Although Cheap Tickets reported its 10th consecutive profitable quarter earlier this month, the firm has had a bumpy ride. Two weeks ago, Cheap Tickets announced it was shuttering its offline retail travel stores in a bid to cut costs and improve efficiency. The travel agency said at the time the move would allow it to focus all of its resources on the company's online and call center businesses.
In addition to the airfare wars that hurt Cheap Tickets in the second
quarter, the company also suffered technical errors on its Web site, a
decline in call-handling ability as its call volume increased, and problems
implementing a new version of its Web site.
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