October 26, 2015 / 10:57 AM / 4 years ago

China online travel firm Ctrip in tie-up with rival Qunar

BEIJING (Reuters) - Chinese online travel company Ctrip.com International Ltd on Monday announced a tie-up with rival Qunar Cayman Islands Ltd and its backer Baidu Inc through a share swap, to tap the rising number of Chinese travelers heading overseas.

The deal is valued at $3.4 billion, according to Reuters calculations.

Ctrip’s U.S.-listed shares were up 28 percent at record $94.66 in early trading, while Qunar was up 20 percent at near five-month high of $49.71.

Overseas spending by Chinese tourists is expected to rise 23 percent this year to $229 billion, and will nearly double to $422 billion by 2020, according to a report by consultancies China Luxury Advisors and the Fung Business Intelligence Centre. (bit.ly/1H4r6t4)

The deal would also improve profitability at both the companies after a pricing war, involving heavy promotions and discounts to customers, has hurt the Chinese online travel sector over the past couple of years.

Ctrip’s adjusted operating margin fell to 4.8 percent in 2014 from 23.6 percent a year earlier, while that of Qunar deteriorated to a negative 46 percent from negative 10 percent.

“This deal significantly increases the likelihood of a profitability improvement trajectory over the next couple of years for both companies ... Ctrip and Qunar are likely to have 70-80 percent of the hotel and air ticket market,” Summit Research analyst Henry Guo wrote in a note to clients.

Ctrip.com will own roughly 45 percent of Qunar and Baidu will take a 25 percent stake in Ctrip.com.

Ctrip.com has a market valuation of $10.6 billion, while Qunar is valued at $5.2 billion.

Bloomberg earlier on Monday reported the plan to merge, citing unidentified people familiar with the matter.

Such mergers are becoming increasingly common in China’s tech sector as a way of dealing with fierce competition between rival companies.

Earlier this month, Meituan.com and Dianping Holdings - which provide online reviews and deals for restaurants and retail and leisure businesses - said they would merge after being fierce rivals for years.

Didi Dache and Kuaidi Dache, two leading taxi-hailing firms, combined in a share swap worth $6 billion earlier this year.

Four Ctrip.com representatives will join Qunar’s board of directors, including CEO Liang and Chief Operating Officer Jane Sun. Baidu’s Chief Executive Robin Li and Tony Yip, the firm’s head of investments, have been appointed to Ctrip.com’s board.

JPMorgan advised Ctrip on the deal. Baidu was advised by Williams Capital Advisors, LLC.

Reporting by Paul Carsten; Additional reporting by Beijing Newsroom, Elzio Barreto in Hong Kong and Ankit Ajmera in Bengaluru; Editing by Jane Merriman and Maju Samuel

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