Diller to Maintain Acquisition Strategy

Barry Diller has made no secret about his InterActiveCorp’s intentions to
put its cash towards acquisitions.

On a quarterly conference call with analysts, the InteractiveCorp (formerly USA Interactive) CEO said the company was reviewing how it may put some of its $5 billion in cash to work.

“Don’t look at anything ridiculous or transforming from us,” Diller delcared. “But I can’t imagine the year will end without us making an acquisition or a series of acquisitions in the $1 billion or so range.”

Analysts expect InterActiveCorp to invest in marketing, international expansion and acquisitions, but it is less clear what may be Diller’s specific targets.

Deutsche Bank’s Jeetil Patel issued a research note setting a ‘Buy’ rating for InterActiveCorp and a stock price target of $45. The stock is currently trading in the $36 range, and has risen from $20 a year ago.

“We reiterate our BUY investment rating on shares of InterActiveCorp based on strong growth across key travel franchises,” Patel said.

“Simply put, we continue to be impressed with management’s execution and ability to scale IAC as the company rapidly completes its migration away from entertainment media to a pure-play interactive and commerce services company. In our view, IAC still represents the leading opportunity to participate in the ongoing shift in travel purchases from off-line to online
over the next five years,” Patel added.

“We estimate that the company, collectively with its travel properties, enjoys about 20-25% share of the online travel market. Moreover, the online travel market is forecast to grow from $20 billion in 2002 to almost $53 billion in 2008,” the Deutsche Bank analyst said.

InterActiveCorp’s acquisitions of Expedia and Hotels.com point to the company’s strategy to purchase strong online travel brands.

On Tuesday, Reuters reported that Expedia has been named as one of several companies interested in buying UK-based online travel rival Lastminute.com. Shares of Lastminute.com shot up on merger chatter and speculation about a possible deal.

Expedia reported strong financial results on Tuesday and during a conference call with analysts, the CEO Erik Blachford said 50 percent of the company’s online travel sales will come from outside the U.S. in the next seven to 10 years, up from eight percent today.

The completion of InterActiveCorp’s buyout of Expedia is expected to close following a shareholder vote on August 8.

Expedia has announced plans to launch in the Asia market in the upcoming quarters. It already operates in Canada, Italy, Germany, France, UK and Holland.

InterActiveCorp is expected to expand and diversify its online travel interests in both Asia and Europe, as well as other strategically relevant companies in the U.S.

“While investors may be somewhat disappointed that IAC has not taken a more aggressive stance in buying back its own shares, we believe that IAC remains focused on protecting its capacity to roll-in complementary acquisitions both domestically and abroad. As such, we believe that IAC’s near-term focus will remain on building out the largest global interactive commerce business,” Deutsche Bank’s Patel added.

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