Cendant Corp., owner of the Avis and Budget car rental brands and Days Inn hotels, announced yesterday it will purchase the Internet travel company Orbitz Inc. for $1.25 billion in cash.
As part of its effort to expand in the online travel arena, Cendant said it would pay $27.50 a share for Orbitz, a 32 percent premium over Orbitz's closing price Tuesday of $20.77.
Orbitz chief executive Jeffrey G. Katz said the cash received by the five airlines that founded the company "won't pay for half a month's fuel bill."
(M. Spencer Green -- AP)
Orbitz shares soared on the news, climbing $6.40, or more than 30 percent, to close yesterday at $27.17.
The company was co-founded four years ago by five of the nation's largest airlines. The sale will provide a small cash infusion to the financially struggling partners. AMR Corp.'s American will receive about $185 million. UAL Corp.'s United -- which has been in bankruptcy protection for nearly two years -- will receive about $180 million in cash. Delta Air Lines Inc., which is on the brink of a Chapter 11 filing, will receive about $100 million. Continental Airlines Inc. will receive about $99 million. Northwest Airlines Corp. gets about $41 million.
"What these airlines get from this transaction won't pay for half a month's fuel bill," said Jeffrey G. Katz, Orbitz chairman and chief executive. Katz will leave the company by the end of the year.
Selling Orbitz allows the airlines to focus on generating sales through their individual Web sites, a strategy each carrier has undertaken to reduce costs.
Cendant also owns Galileo International Inc. reservation service as well as CheapTickets.com, Lodging.com, HotelClub.com and RatesToGo.com. Cendant officials said they plan to keep the travel sites separate. Cendant executives hope the move will allow Cendant, which has been struggling in the online travel distribution sector, to strengthen its position.
"Our strategy is to grow our own online business with corporations and consumers, and this fits into our strategic plan of trying to get to a leadership position in the travel distribution business," said Samuel L. Katz, chairman and chief executive of Cendant's Travel Distribution and Services Division. He is no relation to Orbitz's Katz, the executives said.
Cendant approached Orbitz executives about the acquisition, Cendant's Katz said.
Orbitz, based in Chicago, is the nation's third-most-popular travel site in bookings, behind the nation's largest site, Expedia.com -- owned by InterActiveCorp. -- and Sabre Holdings Corp.'s Travelocity.com.
About 20 percent of the nation's airline tickets are purchased online, but industry officials expect that to grow to about 40 percent by 2006.
Orbitz, which is debt-free and had about $200 million in cash at the end of June, went public in December at $26 a share.
The deal is expected to close by the end of the year.