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Diller's IAC Spinning Off Expedia - InternetNews.
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Diller's IAC Spinning Off Expedia

UPDATED: InterActiveCorp (IAC) plans to spin-out Expedia and its other travel-related sites as a separate company next year, the company announced today.

Expedia will be packaged with 13 sites, including Hotels.com, Hotwire, TravelNow.com and TripAdvisor. IAC chairman and CEO Barry Diller will also be chairman of Expedia. Dara Khosrowshahi, the travel site's senior executive, will lead Expedia, which will be based in Seattle.

"We believe greater value can be created in the configuration," Diller said in a letter to shareholders. "This is entirely an elective ... there is nothing else that pushed us -- no transaction, no inherent worry that led us to take this course at this time."

Later, in a conference call with analysts, Diller said the split will energize both parts of the company. It's important, he said, to bring "simplicity and clarity" to the business model -- both for employees, as well as investors and other companies that compete or collaborate with IAC.

IAC's remaining online properties represent several areas, including: online ticketing, through Ticketmaster; retailing, led by HSN.com; financial services, through LendingTree; and local services, which include Citysearch and Evite. IAC will also keep its personals sites, Match.com and uDate.

The move is supported by IAC's board of directors, and the proposed spin-off could be completed by mid-2005. In addition to filling some middle-management posts, IAC must formalize 36 agreements between its travel companies and other online properties, Diller said.

IAC entered the travel business in 1999, buying Hotel Reservations Network (now Hotels.com). It bought a controlling interest in Expedia two years later.

"Those businesses have had tremendous growth ... to the point where they now represent over 50 percent of IAC's earnings, and dwarf each of our other operations," Diller said. "Many of those, standing on their own, have real import and significance but are considered irrelevant in the current construct."

The spin-off will help correct the view that IAC is only a travel company, which has slowed its growth, Diller said.

"Outside travel, it hinders growth through acquisition because non-travel companies generally don't want to accept what they view as a travel stock. Inside travel, acquisition growth, already hindered without a pure travel currency, would amplify IAC's imbalance, making it even harder for us to grow outside of travel."

The travel sector has been strong. JupiterResearch, which is owned by the same company as this site, said the U.S. online travel sales totaled $54 billion in 2004, 23 percent of all travel purchased. The research firm projected the online market to grow to $91 billion in 2009, which would represent 33 percent of travel purchased.

Other research outfits are equally as bullish on the online travel market. For example, Forrester Research forecasts that online sales will hit $119 billion by 2010, up from $52 billion this year. Asia looks particularly inviting.

"There's only 1.5 percent online travel penetration [in Asia-Pacific]," Khosrowshahi said. "I think we will see the exact same patterns that we saw in the U.S. and Europe."

But it's also getting more crowded for the companies in the space. For example, AOL recently teamed with Kayak Software to build a free travel search offering. Just today, Kayak announced an additional $7 million in second-round venture capital financing for product development and marketing.

Kayak is the brainchild of the founders of Orbitz, Expedia and Travelocity. AOL said it took a minority investment in Kayak as part of the deal.