A share swap unveiled on Monday would closely tie U.S.-traded rivals Ctrip.com International Ltd. and Qunar Cayman Islands Ltd. amid an increasingly expensive race to serve Chinese travelers. It would also tie the two companies closely to Baidu Inc., the Chinese Internet search company sometimes called the Google of China.
Shares valued at roughly $5.9 billion would change hands under the agreement, according to Wall Street Journal calculations, though a spokesman for Baidu said Ctrip and Qunar would remain separate publicly traded companies with their own management teams.
Ctrip and Qunar share prices jumped in trading on Monday; both have been under pressure amid rising competition from larger, better-funded Chinese Internet companies. Ctrip American depositary receipts were up 24% at $92.05 on the Nasdaq Stock Market on Monday morning. Qunar ADRs were up 13% at $44.47, also on the Nasdaq market.
Under the share-swap plan, Ctrip.com would take a 45% stake in Qunar from Baidu. Ctrip in return would issue Baidu new shares representing about a 25% stake. The two would cooperate in their different businesses, while Qunar would continue to work closely with Baidu.
Ctrip's new stake in Qunar was valued at roughly $2.5 billion based on Friday's closing U.S. stock-market prices. Baidu's new stake in Ctrip was valued at roughly $3.4 billion based on Friday's close.
Ctrip said the swap represents 0.725 of a Ctrip ADR for each of Qunar's. Based on Friday's closing stock prices, the exchange gives Baidu a 36% premium to its Qunar stake.
The deal is "very good for all three of us," said Kaiser Kuo, the Baidu spokesman. "We were able to sell at a fairly substantial premium to Ctrip, and now we can have our cake and eat it too."
Representatives for Ctrip and Qunar didn't provide additional comment.
Ctrip and Qunar offer users different experiences. Ctrip, which is similar to U.S. online travel services like Expedia , provides full services and is often used by business travelers. Qunar, which is similar to services like Kayak, focuses on giving customers more choices with a focus on price, and offers more appeal to do-it-yourself travelers.
Last year, the government-affiliated China Internet Network Information Center estimated market share of about 34% for Ctrip and 22% for Qunar.
Ctrip and Qunar compete to serve the growing number of travelers who are increasingly taking trips within China and abroad. According to the China Tourism Research Institute, China had 61.9 million outbound visitors in the first half of 2015, an increase of 12% compared with the same period in 2014. Boston Consulting Group predicts Chinese tourists will spend about $1.8 trillion on travel and tourism by 2030, nearly seven times what they spent two years ago.
China's big three Internet companies— Alibaba Group Holding Ltd. , Tencent Holdings Ltd. and Baidu—all have an increasing appetite for travel businesses. Ctrip and Qunar have been ramping up spending on technology and marketing to keep their position.
Ctrip reported second-quarter net income attributable to shareholders of 142.8 million yuan ($22.5 million), up 5.8% from a year earlier. Qunar reported a second-quarter loss attributable to shareholders of 815.7 million yuan, roughly double that of a year earlier.
The two companies have been in talks for months about a tie-up. In May, Qunar rejected an unsolicited buyout offer from Ctrip, and instead took a $500 million investment round led by private-equity firm Silver Lake. Ctrip, meanwhile, received an additional $250 million investment from Priceline Group Inc., which invested $500 million in 2014.
Ctrip Chief Executive James Liang and Chief Operating Officer Jane Sun will join Qunar's board.
Source: Wall Street Journal by Alyssa Abkowitz
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