RealTime IT News

The Travelocity and Preview Travel Marriage

When Microsoft filed to take its online travel site, Expedia, public, it looked like another big win for Redmond.

But the Web is never easy - even for Microsoft.

To counter the move from Microsoft, Sabre Holdings announced a blockbuster merger between its online unit Travelocity and Preview Travel (PTVL). With a stroke of the merger pen, the combination will result in the biggest online travel company. The #2 company will be Microsoft and #3 Priceline.com.

In fact, the new Travelocity will actually be the third largest e-tailer (eBay is #2 and Amazon #1). In all, the site will have over 17 million registered users.

This is definitely great news for Travelocity. The market for online travel is expected to amount to $7.8 billion in transactions in 1999, according to Forrester Research. This is supposed to grow to $32 billion by 2002.

Here's how the deal works: Current shareholders will trade one share of stock for a new share in Travelocity.com, which will be the new entity. The ticker symbol will be TVLY. It will be 70% owned by Sabre and 30% owned by existing Preview Travel shareholders. What's more, Sabre will provide a $50 million cash infusion. The deal is expected to close in the first quarter of 2000.

The merger makes lots of sense. Sabre has become the central nervous system of the airline industry, as it is the dominant reservation system. Actually, many believe that it is a monopoly.

But Sabre did something else important this week; that is, it finalized a deal with AOL, to become the exclusive reservations provider for the next five years. Sabre has agreed to pay AOL $200 million.

Travelocity also has distribution deals with Excite@Home and Disney's Go.

As for Preview Travel, it has its own core assets. The company, for example, has agreements with Lycos, Gannett's USA Today and Excite@Home.

Also, Preview Travel is strong in the categories of cruises and travel packages, whereas Travelocity is strong in airlines and auto travel.

In the past few weeks, Preview Travel has been red-hot, increasing nearly 250%. Eventually, the stock will cool-off, especially as Expedia gets closer to its IPO.

So, it would be a good idea to wait to buy Preview Travel, say several months after the Expedia IPO.

After the merger is completed next year, we will begin to see the synergies of the deal pay off, making the new Travelocity an attractive long-term investment.


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