Firms decline to comment on merger rumors

By Chu Daye Source:Global Times Published: 2014-4-15 23:23:01

Travelers take photos at the Longmen Grottoes, a popular tourist destination in Luoyang, Central China's Henan Province. Photo: IC

 International and Inc, two Chinese NASDAQ-listed online travel service providers, both declined to comment Tuesday on market rumors that they will merge in a deal that would create an online travel service giant with a market capitalization of over $10 billion.

The rumors, as reported by China Business Journal over the weekend, claimed that search engine giant Baidu Inc, the majority shareholder in Qunar, will swap its shares in Qunar for Ctrip shares, resulting in Baidu taking a controlling stake in Ctrip.

"Ctrip's market capitalization as of Thursday is $7 billion and for Qunar it is $3.2 billion, making the deal potentially the biggest ever in China's online travel industry," Yang Yang, an analyst with consultancy iResearch, told the Global Times Tuesday.

Baidu will get the cream of Ctrip's off-line assets, like call centers, sales teams, and upstream resources, as well as Ctrip's newly acquired assets such as car rental firm eHi, beefing up its presence in off-line services as well as ­online travel services, Yang said.

Yang said Ctrip's operating model relies heavily on Internet traffic flow, and a merger with Qunar and support from Baidu would definitely be a boon for its business.

Qunar's performance has fallen short of Baidu's short-term expectations, so Baidu wants to push forward the merger deal, Yang said.

"Qunar is a latecomer, and it offers slightly cheaper prices and off-the-beaten-track tour packages that Ctrip does not cover. Qunar started as a purely online third-party service provider, while Ctrip has a strong background in off-line businesses and connections with various travel agencies," Zhao Zheng, a professor at the School of Economics and Resource Management at Beijing Normal University, told the Global Times on Tuesday.

Top executives of the two companies have voiced some of their opinions, but without directly commenting on the merger.

"Ctrip will keep its independent operation on a long-term basis. With that said, Ctrip welcomes investment from other parties," Ctrip CEO Liang Jianzhang told the Shanghai-based Oriental Morning Post on Monday.

Liang said the usual market practice would be to let the initiator of a merger take the leading position in the new company.

Liang also noted that Ctrip sees itself as China's, the world's biggest online travel site, which is worth over $30 billion.

Media reports Tuesday said that Qunar CEO Zhuang Chenchao had sent an internal e-mail to company staff, saying that all the negotiations Qunar is conducting with various investors are based on the premise of Qunar controlling its own future.

In 2013, the transaction volume in China's online air ticket business reached 154.46 billion yuan ($24.82), while the trading volume on Ctrip accounted for a 30.3 percent share of the market, according to data released in January by industry website Jinlü Consulting.

Qunar, meanwhile, had a 19 percent share of the market, giving it a leading position among third-party travel service platforms.

Data from Jinlü Consulting also showed that Ctrip dominated the online hotel booking market in 2013 with a 28.8 percent market share. Qunar's market share amounted to 4.4 percent, the data showed.

"A takeover that would simultaneously involve three listed companies has never been seen in the history of mergers and acquisitions of Chinese companies. The realization of such a complicated deal would require a huge investment in terms of time, resources, and manpower," Yang said.

"Online travel only accounts for a small portion of the market compared with off-line travel services, [but] this sector has grown rapidly in recent years and has huge potential," Zhao said.

"If the two companies really merge into a super company, small third-party online travel service providers would have to find ways to differentiate their products and services in order to survive, " Zhao said.

Ctrip's shares stood at $54.37 on NASDAQ, up 1 percent by close of trading on Monday. Qunar's closing share price was $28.75, down 0.55 percent on Monday.

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