Online travel booking company, Priceline.com PCLN announced that it will increase its stake in China's online travel company, Ctrip.com International, Ltd. CTRP, as part of its efforts to broaden its footprint in the world’s largest outbound-travel market.
Priceline said it has agreed to invest an additional $500 million through a convertible bond along with an unnamed "long-term equity investment firm".
In Aug 2014, Priceline invested $500 million in Ctrip through convertible bonds and then in May this year it made a similar investment of an additional $250 million. Therefore, it has already bought $750 million in convertible bonds from Ctrip.
With the inclusion of the new bond, Priceline has invested around $1.9 billion in Ctrip convertible bonds and American Depositary Shares since 2014 and if fully converted would hold around 45.5 million Ctrip shares on a fully diluted basis.
Ctrip has extended its agreement to The Priceline Group to increase its ownership in Ctrip through the acquisition of Ctrip's American depositary shares in the open market so that, when combined with the shares issuable upon conversion of the $250 million convertible bond and the $500 million convertible bond issued to The Priceline Group in May 2015 and August 2014, respectively, The Priceline Group may hold up to 15% of Ctrip's outstanding shares.
The partnership between the companies goes back to 2012 under which the two endorse hotel packages on each other's websites. Priceline’s Booking.com promotes Ctrip’s inventory of hotels in China whereas Ctrip provides its users a wider range of deals from Priceline’s platforms, including Booking.com, Agoda.com for smaller hotels, OpenTable for restaurants and rentalcars.com.
Priceline generates the bulk of its business from international markets where growth prospects are greater than in the domestic market. China and other Asian countries are relatively under-penetrated and therefore present good growth opportunity although there are a number of local players.
Therefore, Priceline has increased focus on these regions through Agoda, Booking.com and Ctrip. China is in fact expected to see the strongest growth in both business and leisure travel and Priceline’s agreement with Ctrip enables it to share inventory and thereby capture outbound traffic from China.
The latest move will further strengthen the relationship between the two and help Priceline move closer to its goals.
Priceline shares currently carry a Zacks Rank #3 (Hold). Better-ranked stocks are NVIDIA Corporation NVDA and Stamps.com Inc. STMP, both sporting a Zacks Rank #1 (Strong Buy).
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