Skift Take

Ctrip had a 47.3% share of the China online travel market in 2012, according to iResearch, and Qunar was a powerhouse, as well. A merger of the two public companies, and the close relationship with dominant search engine Baidu that the merger would deliver to Ctrip would be a game-changer in China.

Baidu Inc.’s Qunar travel website is in discussions to merge with International Ltd., according to two people with direct knowledge of the talks.

The companies are discussing a range of possibilities, from a full-blown merger to a partnership, the people said, asking not to be identified because the negotiations are private. The talks are in an early stage and may not result in a final deal, the people said. The ownership structure and financing methods haven’t been decided, the people said.

Baidu, owner of China’s most-popular search engine, has been investing in and acquiring services that boost the search service and help it compete with Alibaba Group Holding Ltd. and Tencent Holdings Ltd. for the attentions of China’s 618 million Internet users. China’s online travel market is expected to reach 465 billion yuan ($75 billion) by 2017, according to Shanghai-based consultant IResearch, as the growing middle class spends more money on leisure and entertainment.

“It makes sense for Ctrip to partner with Baidu because Chinese travel sites still rely heavily on search engines for traffic volume,” said Alex Wang, an analyst at IResearch. “Travel is a very important component of Baidu’s advertising revenue, and working with Ctrip could help it better monetize this sector.”

Different Segments

The combined entity could have a valuation of at least $10 billion as the two companies cater to different market segments, Wang said. Qunar customers tend to do most of their bookings online, while Ctrip customers tend to use the company’s call centers.

Kaiser Kuo, a Beijing-based spokesman for Baidu, declined to comment on whether the company or its Qunar unit is in talks with Ctrip. Ying Changtian, a Shanghai-based spokesman for Ctrip, declined to comment.

It is unclear which company would take control of the other. Qunar is controlled by Baidu, which has a market capitalization of about $50 billion.

Qunar Cayman Islands Ltd., which went public last year in the U.S. and raised $167 million, has been investing in mobile services as Chinese Internet users shop more on their smartphones. The company has a market capitalization of $3.1 billion, while Ctrip has a market value of $6.5 billion.

Baidu paid $306 million in 2011 for a majority stake in Qunar to tap the country’s growing travel market. It had 58.6 percent of voting power at the end of last year, according to a Feb. 14 filing with the U.S. Securities and Exchange Commission.

Qunar reported sales of about $41 million in the quarter ended Dec. 30 and a net loss of about $20 million during the period.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at [email protected] To contact the editors responsible for this story: Michael Tighe at [email protected] Peter Elstrom

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Tags: baidu, china, ctrip, qunar

Photo credit: Chinese online travel leader Ctrip is reportedly in talks about a possible merger with Qunar. PlaceIt by Breezi