In the 19 months before Expedia Inc. and Orbitz Worldwide announced Expedia’s $1.34 billion acquisition of Orbitz, Chicago-based Orbitz conducted discussions with 17 other domestic and foreign strategic acquirers or private equity firms about potential investments, related commercial relationships or acquisitions, although only one other potential strategic acquirer, besides Expedia, actually submitted a bid.

Although there was plenty of kicking the tires beforehand, the Orbitz board formally endorsed a sales process on October 6, 2014 but decided to delay approaching Expedia about an acquisition at that time because Orbitz wanted to study potential regulatory issues, and believed that Expedia could move fast on an acquisition in light of its experience in such transactions and its familiarity with Orbitz’s business.

Orbitz Worldwide CEO Barney Harford approached a member of Expedia Inc.’s senior management more than two months later, on December 16, 2014, about a sale, and Expedia signed a confidentiality agreement two days later.

The Expedia bid that the Orbitz board accepted on February 11, 2015 was for $12 per share, which was a 30 percent premium over the stock’s closing price on February 10. Expedia would have to pay Orbitz a $115 million fee (8 percent of the deal’s equity value) if regulators killed the deal, and Orbitz would have to pay Expedia $57.5 million (4 percent of the deal’s equity value) if Orbitz accepts a superior offer in the interim.

Expedia, according to an Orbitz regulatory filing that includes the background to the merger, made its initial preliminary proposal to acquire Orbitz for $10.50 a share on January 16, 2015. That bid represented just a 14.6 percent premium to the stock’s closing price that day.

In the juncture between Expedia’s preliminary bid on January 16 and the Expedia bid that Orbitz accepted February 11, another strategic acquirer, identified as Party O, approached Orbitz’s financial advisor, Qatalyst Partners, on January 23, 2015, and submitted a cash bid for between $9.50 and $10.50 per share on February 4, 2015.

Even Expedia’s initial $10.50 per share offer appeared to have been superior to Party O’s bid.

The Run-Up to the Acquisition

The background to the merger process really can be traced to August 2013 when Party A, a potential strategic acquirer, requested an introductory meeting with Orbitz about a exploring a commercial relationship and taking a minority investment, possibly Travelport’s then-36.1 percent stake in Orbitz.

Interestingly, Orbitz declined to grant Party A a waiver to speak directly with Travelport about acquiring its controlling stake in Orbitz because Orbitz didn’t think it was in its interest to have one party acquire such a large stake.

Separately, Travelport sold its 36.1 percent interest in Orbitz on July 2014, whittling it down to less than 1 percent.

Including Expedia, 18 companies engaged with Orbitz in some way, ranging from being willing to hear about an Orbitz sale to expressing an interest in making an investment or indicating a willingness to consider an Orbitz acquisition in the future, from August 2013 to February 12, 2015, when  Expedia’s acquisition of Orbitz was announced.

Takeaways From the Financial Filing

Antitrust Concerns: Among the takeaways from the Orbitz financial filing about the merger process, it is clear that the issue of whether the deal with Expedia would gain regulatory approval was a concern all along the way.

Orbitz had discussions about potential investments and acquisitions with a half dozen other companies before it approached Expedia in mid-December 2014 about a sale at least in part because of the need to do additional research about the regulatory issue.

And much of the final negotiations about the deal revolved around the amount of compensation Expedia would pay to Orbitz if antitrust regulators sought to block the deal and how much Orbitz would pay Expedia if Orbitz accepted a superior financial offer.

Private Equity Negativity: Among the 18 companies that kicked the tires during the Orbitz sales process, a substantial number were what Orbitz called “financial sponsors,” most likely private equity and similar firms.

In a summary of a board meeting February 8, 2015, just days before the deal announcement, Orbitz discussed the “negative feedback” it received from these financial sponsors.

“The Board, management and representatives of Qatalyst Partners discussed the results of the sale process to date, including the negative feedback financial sponsors had provided concerning the low expected premium they would be willing to offer to the company’s trading price and the limited availability of exit opportunities,” Orbitz stated. “Following such discussion, the Board concluded that outreach to additional potential acquirors would be unlikely to produce an offer superior to Expedia’s $12.00 per share offer.”

Orbitz Wasn’t Looking to Remain a Controlled Company: Short of an outright sale, Orbitz apparently wasn’t looking to replace Travelport as a controlling investor with a new controlling investor.

A potential strategic acquirer, identified as Party B, expressed an interest on October 21, 2014 in acquiring Orbitz at an unspecified future date, and submitted a term sheet on November 19, 2014, seeking to take a minority stake in Orbitz and to establish a commericial relationship.

Orbitz objected to the size of Party B’s proposed stake and the nature of its governance. The two parties halted discussions over the transaction a month later.

The Role of the Press: Orbitz stock closed at $8.11 on January 5, 2015, the day before Tnooz published a story, which Orbitz referred to as “rumors related to a possible strategic transaction involving the company.” The $12 per share that Expedia offered and Orbitz accepted February 11 represented a 48 percent premium over the January 5 closing pricing.

On January 21, 2015, the Orbitz board decided not to contact any additional potential acquirers because more “rumors” had been published a day earlier — in this case stories by Bloomberg and Skift, among others — about a potential acquisition. Orbitz figured that any additional companies interested in the sales process would already have heard about it.

TripAdvisor Wasn’t Interested: It isn’t known whether TripAdvisor engaged in the sales process because, as is customary, the identities of the 16 companies beyond Expedia that engaged with Orbitz were not disclosed.

However, TripAdvisor has made it clear that it wasn’t interested in an acquisition of Orbitz for a variety of reasons.

More Is Less: In light of six shareholder lawsuits against Orbitz and Expedia over the deal, Orbitz wants to show that the sales process was wide-ranging and robust, and indeed it appears to have been so.

However, some of these companies were contacted by Orbitz and didn’t express any interest.

For example, the Orbitz financial filing states:

“On October 12, 2014, Barney (Orbtiz CEO Barney Harford) spoke with a member of the management of a potential strategic acquirer, which we refer to as ‘Party D’ in this proxy statement, to explore Party D’s interest in a commercial or strategic relationship with Orbitz. Party D indicated it was not interested in a strategic relationship or strategic transaction with Orbitz at that time, in part due to its recent completion of a major strategic relationship with another industry participant.”

And a month later, management and the board asked company chairman Scott Forbes to contact another potential strategic buyer about possible interest in an acquisition.

“This potential strategic buyer did not respond to our query,” Orbitz states. “Our management was aware that online assets were not considered a core component of this potential strategic buyer’s business, and consequently determined, after discussions with representatives of Qatalyst Partners, that additional outreach to such party during the sale process was unlikely to be productive.”

For a detailed look at the backdrop to Expedia’s acquisition of Orbitz, see pages 31 to 44 of the Orbitz proxy.

Photo Credit: CEO of Orbitz Barney Harford, (L) and Expedia CEO Dara Khosrowshahi (R). Orbitz Worldwide / George Grinsted / Flickr