USA Networks Buys Control of Expedia From Microsoft

USA Networks (Nasdaq: USAI) said Monday it will buy the controlling stake in travel site Expedia.com from Microsoft (Nasdaq: MSFT) (Nasdaq: MSFT), as the entertainment company makes a major push into online travel.

Los Angeles-based USA Networks said it has agreed to purchase up to 37.5 million shares of Expedia stock, including more than 33 million shares and warrants from Microsoft.

Based on Friday's closing price of US$48.70, the deal would have a total value of about $1.8 billion. After all shares are exchanged, USA will control up to 75 percent of all Expedia shares and 90 percent of voting shares, while Microsoft will hold a 3 to 5 percent equity stake in USA Networks. The deal is expected to be closed by year's end.

In early morning trading Monday, however, Expedia shares had fallen more than 10 percent, dropping $4.99 to $43.71. USA Networks was up 39 cents to $29.65.

In 1999, USA Networks made but later dropped a bid for Internet portal Lycos. USA also controls Tickemaster.com and its offline counterpart.

Bundle of Buys

Separately, USA Networks said it had agreed to buy privately held National Leisure Group, a cruise and vacation package travel agency, and would launch the USA Travel Channel.

Buoyed by that deal, the Expedia takeover and the Hotel Reservations Network (Nasdaq: ROOM), which USA Networks already controls, USA Networks said it would command about $4 billion worth of travel booking every year.

"For some time we have believed travel to be a key building block in offering goods and services in interactive formats," USA Networks chairman and chief executive officer Barry Diller said. "I can't think of a better knitting together of the convergence of entertainment, information and direct selling."

Strong Quarter

News of the sale came as Expedia said it would beat analyst expectations for fourth-quarter earnings. Bookings on the site more than doubled from a year ago, according to the company.

Expedia said it would report net earnings of $12 million to $14 million, or 24 to 29 cents per share, on $78 million in revenue for its fourth fiscal quarter, beating the firm's own earlier estimates and the estimates of analysts. During the same quarter a year ago, Expedia lost $13 million on $37 million in revenue.

The earnings will mark the second straight profitable quarter for Belleveue, Washington-based Expedia.

Sales Surge

"Our tremendous momentum continued in the quarter," Expedia president and chief executive officer Richard Barton said.

Barton said several new initiatives, including a discount airline fares program and a travel packages feature, helped drive sales, which rose to $802 million, up 78 percent from a year before and 19 percent from the third quarter.

Uncertain Reception

While the USA Networks-Expedia deal has the blessing of Microsoft, other shareholders might still want to scrutinize the complex agreement closely.

Expedia has been slapped with several shareholder lawsuits stemming from the company's November 9, 1999 initial public offering.