Could Travelzoo scratch its booking site itch by making merger magic with Jetsetter?

With the twin revelations that hotel-site Jetsetter is up for sale while Travelzoo is negotiating to acquire an unidentified hotel-booking site, does a merger of the two make any sense?

There’s an argument to be made that a Travelzoo acquisitiion of Jetsetter, owned by Gilt Groupe, would benefit all concerned, although there are other hotel-booking site candidates for Travelzoo to consider, including Perfect Escapes and its sister brands, which are currently the subject of an asset sale.

It’s ironic that Travelzoo, which operated solely as a media business for more than a decade with its deal newsletters and didn’t handle any transactions until it launched Local Deals in August 2010, now wants to transition even further into hotel transactions with the acquisition of a hotel-booking site. In revealing such a scenario, Travelzoo indicated that its somewhat-Groupon-like group-buying and voucher business wasn’t performing up to par, another sign of a shakeout in the ranks.

A Travelzoo acquisition of Jetsetter, which started in 2009 with flash sales of upscale hotels, but has branched out into the traditional, published price hotel business, as well, would give Travelzoo a reputable brand, a hotel booking site with a luxury twist, and enhanced hotel relationships.

King Mountain View room at St. Julien Hotel & Spa. Courtesy of Jetsetter

And, since Jetsetter recently dipped its toes into the tonight-only hotel-deals space with Jetsetter Now on its iPhone app, Travelzoo could enter this hot mobile-sector du jour to compete against the likes of Hotel Tonight, Priceline, Travelocity and others. Jetsetter also has a very attractive iPad app for flash and retail hotel sales, although Jetsetter Now is not yet on the iPad app.

Travelzoo, with its 22.1 million newsletter subscribers in North America and Europe, not to mention a licensing arrangement with spinoff Travelzoo Asia Pacific, could use that base to scale the Jetsetter hotel business, although it would have to figure out how deal-hungry newsletter subscribers would mesh with Jetsetter’s somewhat-more upscale hotel aspirations.

A sale would enable Gilt Groupe to shed a noncore asset, with Jetsetter believed to be losing around $2 million per year on $25 million in sales.

Gilt Groupe is reportedly asking a fantastically exhorbitant $100 million for Jetsetter, but would settle for much less, although a negotiated price tag might still be too pricey for Travelzoo.

Red or black?

And, would a hotel-booking site such as Jetsetter, which is $2 million in the red, be attractive to anyone?

Travelzoo would certainly be able to trim Jetsetter’s operating expenses as Jetsetter has a penchant for hiring journalists to review each hotel and photographers to take images instead of leaving that to the hotels.

And, there would be enough overlap between the respective companies’ staffs to make for a cost-conscious bloodletting that might paint Jetsetter’s bottom line closer to black.

Travelzoo probably has enough cash on hand, $54.1 million as of June 30, to acquire Gilt-funded Jetsetter, which would probably sell for considerably less than a $50 million figure being speculated about in the media.

One factor weighing against the Travelzoo-Jetsetter combo scenario is that Jetsetter’s going on the block may have only happened in the past several weeks while reading between the lines of Travelzoo’s October 12 announcement would lead one to believe that it has been involved in protracted negotiation to acquire a hotel-booking entity.

Not perfect, but possible

Meanwhile, there are other hotel-booking sites on the block that could also serve Travelzoo’s ends — and likely would be cheaper to acquire than Jetsetter.

For example, UK-based Travesse Lifestyle, which owns luxury hotel sites such as Perfect Escapes in the U.S., and Travesse.com, Spire and Travel Intelligence in the U.K., has gone into bankruptcy reorganization, known in the UK as “administration,” and there is an asset sale under way.

These Travesse brands may not have the reach or brand name of Jetsetter, but Travelzoo could probably acquire one or two of these Travesse hotel sites at a cheaper purchase price while accomplishing some of the same ends in the hotel-booking sector.

Gilt Groupe declined to comment on a potential sale of Jetsetter to Travelzoo, and Travelzoo didn’t respond to requests for comment.

More information will likely be released when Travelzoo makes its third-quarter earnings announcement on October 25.