RealTime IT News

One Step Forward...Two Steps Back

Barry Diller's ambitious dream to turn USA Interactive into a Web-based travel and leisure kingdom on Thursday took one step forward and two steps back. The company closed a buyout of Ticketmaster but canceled similar deals with Expedia Inc. and Hotels.com .

The New York-based media conglomerate, which already owns 67 percent of Ticketmaster , announced a deal to gobble up the remaining shares of the online ticket broker. However, Diller backed away from the $4.5 billion buyout bid for the Expedia and Hotels.com subsidiaries.

USA Interactive already owns a majority stake in both Expedia and Hotels.com.

"While we would have liked to reach the same result with Expedia and Hotels.com, we are convinced no transaction will be consummated at this time," Diller said.

The original buyout bid was part of a massive plan to shore up USA's ownership in three of its fast-growing travel and entertainment subsidiaries and create an end-to-end e-commerce powerhouse.

Despite pulling out of those deals, Diller insisted the company would continue to target the travel sector. "No one should mistake our actions as any lessening of enthusiasm in Travel as a key part of our future - notwithstanding today's unstable international climate - our faith in the growth of interactive travel services over the long term is complete," he said.

"We remain committed to the principle of simplification, but we believe it's in everyone's best interest to end the formal process and get on with operating the businesses without distraction," he added.

Terms of the Ticketmaster deal call for USA Interactive to shell out 0.935 of a share of stock for each Ticketmaster stock they own. The deal values each outstanding Ticketmaster share at $15.17, a 19.8 percent premium. Once the deal closes, USA would also issue just over 45 million shares of Ticketmaster's shareholders.

Despite the scrapping of the Expedia and Hotels.com deals, analysts expect USA to pursue its roll-up strategy when the time is ripe. "A lot of the objections (from Expedia and Hotels.com) revolved around price USA was offering. It's clear USA wasn't willing to pay what Expedia and Hotels.com wanted. But I don't expect (Diller) to drop it entirely," said Jared Blank, who covers the travel and hotels sector for Jupiter Research.

"This will definitely slow down the plans to bring everything in-house as part of this big e-commerce strategy USA is pursuing. USA is very committed to the travel sector to I imagine they will revisit the buyout of Expedia and Hotels.com in the future," Blank said.

However, Hotels.com insists it is happy to stay the course as a stand-alone entity. "The statement by USA Interactive that it is terminating the acquisition process should clear up any uncertainty in the market regarding the proposed exchange offer," said Elan Blutinger. "Hotels.com employees have created a growing, profitable publicly-held company. The Special Committee has every confidence that the Company can continue to build on its past success on a stand-alone basis," he added.

USA Interactive (formerly USA Networks), set tongues wagging when it went against the grain and embraced e-commerce at a time when the dot-com shakeout was in full swing. In addition to Ticketmaster, the company also owns Home Shopping Network (HSN), Interval International; TV Travel Group; Precision Response Corporation; Electronic Commerce Solutions; and Styleclick, Inc.