In a merger that would create the dominant player in the fast-growing online travel business, Sabre Holdings Corp. said yesterday that it plans to buy Preview Travel Inc. and merge it with its own service, Travelocity.com.
The new company, which would be called Travelocity.com and be based in Fort Worth, would have more than $1 billion in annual sales and about 17 million registered users. The deal was strengthened by separate announcements yesterday by Internet heavyweights America Online Inc. and Yahoo Inc. that they plan to use Travelocity extensively on their sites.
Dulles-based AOL said that after the Travelocity.com merger deal closes, Travelocity will pay AOL $200 million over five years to be the exclusive travel agent on all of AOL's sites. Yahoo said it has extended an existing contract and will make a minority investment in Travelocity.com.
"We get great portal deals out of this," said Terrell B. Jones, president of Travelocity, who will take the titles of president and chief executive of the new firm.
People use online travel services to scout vacation spots, buy airline tickets and reserve hotel rooms. Travel-related e-commerce is expected to grow from $7.8 billion in 1999 to $32.1 billion in 2004, according to Forrester Research Inc.
AMR Corp., parent of American Airlines, owns about 82 percent of Sabre, which operates a profitable computerized reservation service used by travel agents worldwide as well as by individual users of its Travelocity site.
Analysts praised the merger because it would combine Sabre's reservation and ticketing technology with Preview Travel's well-packaged one-stop content. "If you're going to be a travel titan, you need the ability to do ticketing and content," said Allen Weiner, an analyst with Internet research firm NetRatings Inc. "This deal brings those two elements together."
The merger gives Microsoft Corp.'s Expedia--which as of Aug. 31 had about 7 million registered users--much more powerful competition. Travelocity is currently the top site, followed by Preview and then Expedia, according to NetRatings. None of the sites makes money. Microsoft already has announced plans to spin off Expedia to the public, both to take its losses off Microsoft's books and to mine the fever for pure Internet stocks.
Weiner predicted that within a year the new Travelocity would use its broadened platform to become more of a "lifestyle" site, offering extras such as movie and theater tickets.
Jones said Travelocity plans to add features such as travel videos over high-speed Internet lines. He also said to expect more of what's known as "permission marketing," advertising geared toward a specific customer's interests, sent with their permission.
"If I know you're going to Barbados and you're a diver, what can I tell you about Joe's Dive Shop?" said Jones. "That's not junk mail."
Under the terms of the deal, Sabre would put up $50 million in cash plus the assets of Travelocity for a 70 percent stake in the new company; the rest would be owned by Preview Travel shareholders. With 13.8 million shares outstanding and a closing share price of $17.62 1/2 on Friday, Preview Travel is valued at about $243 million.
Each company involved in the deal got a nice bump up in share price yesterday. AMR shares closed $5.37 1/2 higher at $59.25. Preview shares jumped $6.68 3/4 to close at $24.31 1/4, and Sabre climbed $6.12 1/2, to $49.50. The deal, which has been approved by the companies' directors, is expected to close early next year.
CAPTION: Travelocity President Terrell B. Jones, left, and Preview Travel Chairman James Hornthal were in New York for the merger announcement.