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.

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