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The Priceline Group has invested $500 million in Chinese booking site Ctrip, the largest in China, through a convertible bond that will, in the end, give Priceline 10% of the company’s shares.

Priceline and Ctrip have had an agreement since 2012 to cross-promote products — primarily hotels — aimed at outbound Chinese travelers.

Under the terms of the agreement, the two companies will promote one another’s hotel inventory and the economics will be more mutually advantageous.

Ctrip agrees to promote Priceline Group brands, including and OpenTable, to Ctrip customers, and the Priceline Group will promote Ctrip’s flight services and tours and activities to Priceline customers.

This deal has huge implications despite the fact that the Priceline Group gets only a 10% piece of Ctrip. Priceline is playing its China card with the leading travel-booking site in China, and Baidu-affiliated Qunar and Expedia’s eLong get weakened in the process.

The Chinese online booking world has been rife with a surprising amount of drama over the last three months. Expedia, which owns a majority stake in eLong, a Ctrip competitor, in early July it issued a statement to deny rumors that it was selling this stake to Ctrip. Earlier, word that Ctrip and Qunar would combine in a $10 billion mega-merger led to speculation about the power of a booking-search giant of such size.

This is the first real activity to come out of the chattering.

Then Priceline CEO Jeffery Boyd provided a preview of sorts about today’s announcement — or at least the warm relations between Ctrip and the Priceline Group — in June 2013.

Boyd was bullish about the partnership of two Priceline companies — and Agoda — with China’s Ctrip as a means of attracting business from the growing ranks of Chinese international travelers.

Boyd noted at the time that Ctrip’s business model, with most bookings taking place on the mobile even if the initial research was performed on the Web, is highly different than Priceline’s, but very effective, nonetheless.

“We like those guys a lot and we are very excited to be doing business with them,” Boyd said at the time.

The Priceline Group’s unit is already the global leader in online and mobile hotel bookings, and this deal gives it further traction with a home-grown partner in one of the largest travel markets in the world, and in an unparalleled emerging market.

As side benefits, the deal gives the Priceline Group’s OpenTable dining reservations platform an opening into a massive market where it will compete with local players.

Chinese travel sites such as Qunar and Ctrip are also relatively advanced in providing tours and activities through mobile devices, and Priceline will not only promote Ctrip’s attraction tickets, but could pick up some additional mobile expertise as part of its investment.

TripAdvisor, which has two travel brands in China, and, will face increased competition on hotels because of the Priceline Group’s investment in Ctrip, and also in dining reservations in relation to TripAdvisor’s recent acquisition of Lafourchette.

ctrip Net revenues were RMB1.7 billion (US$278 million) for

According the Priceline Group’s statement on August 6, 2014, about its investment in Ctrip:

“The Priceline Group agreed to invest $500 million through a convertible bond and Ctrip has granted The Priceline Group permission to acquire Ctrip shares in the open market over the next twelve months, so that combined with shares convertible under the bond, The Priceline Group may hold up to 10% of Ctrip’s outstanding shares. Upon purchase of the convertible bond, The Priceline Group will acquire the right to appoint an observer to the Ctrip board of directors.”

Photo Credit: Ctrip is China's largest online travel agency. PlaceIt by Breezi