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It's as if Priceline invested in and then started helping out Expedia.

Qunar Cayman Islands Ltd. rallied as International Ltd. said it will buy a “significant minority stake” in the company three months after they formed a partnership that gave them combined control of about 80 percent of China’s online hotel and air-ticket markets.

The move eased concern that Ctrip, the country’s biggest online travel service provider, would benefit more from the partnership at Qunar’s expense. Short interest in Qunar surged to the highest level on record in the days following the announcement of the deal in October, which brought together two firms whose managers have a history of animosity and gave Ctrip a voting interest in its long-time rival.

Qunar rallied 9.6 percent to $41.81 as of 1:39 p.m. in New York. Ctrip said in a statement that it will invest about $1.3 billion and issue around 5.4 million ordinary shares to several investment entities which will “acquire a significant minority stake” in Qunar from shareholders “through privately negotiated transactions.” The purchases will either be made in cash or using Ctrip stock. Ctrip declined 6.2 percent to $41.84.

The move should allow Ctrip to become Qunar’s absolute majority shareholder, according to Henry Guo, an analyst at Summit Research Partners LLC. “It cleared up a lot of misunderstanding that Ctrip only wanted to eliminate a competitor through the merger,” Guo said by phone on Wednesday. “Since the two will become one entity rather than form a partnership, there’s no reason for Ctrip to do something to harm Qunar.”

Short Interest

Short interestin Qunar surged to a record 41 percent of outstanding shares on Nov. 9, two weeks after the partnership with Ctrip was announced, according to data compiled by Markit and Bloomberg. Under the terms of that deal, Ctrip got a 45 percent voting interest in Qunar, while Baidu Inc., which controls Qunar, got own 25 percent of Ctrip. About 25 percent of Qunar’s outstanding shares remained sold short as of Tuesday.

“The initial concerns were probably based on Qunar as a stand alone entity being in the shadow of Ctrip,” said Brendan Ahern, a managing director at Krane Fund Advisors LLC., by phone from New York. “Now we are seeing a full integration coming, and you have a much stronger company in a long run.”

Qunar is still down 23 percent this year, compared with an 11 percent drop in a Bloomberg gauge of U.S.-traded Chinese stocks. The company has shaken up management since October, including the departure last week of founder and Chief Executive Officer Chenchao Zhuang. Some of China’s biggest airlines including Air China Ltd. and China Eastern Airlines Corp. have said they stopped using Qunar for ticket sales, citing customers complaints. The moves came just a few weeks before the peak travel season of Lunar New Year in February.

This article was written by Bonnie Cao from Bloomberg and was legally licensed through the NewsCred publisher network.

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Tags: ctrip, otas, qunar

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