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Over the last few months there has been sporadic speculation and conjecture that the Priceline Group, which has been uncharacteristically quiet on the mergers and acquisitions front, or even Google could pull the trigger and buy TripAdvisor, especially as the review and booking site’s stock closed yesterday under $69 per share, or about 27 percent lower than its 52-week high.
What some would view as this relatively cheap price for TripAdvisor could change dramatically — one way or the other — when the company reports second quarter earnings on August 4 and provides further details on whether its grand project, TripAdvisor Instant Booking, which finds consumers booking hotels on TripAdvisor, is working out as planned. Specifically, TripAdvisor seeks to reverse a recent decline in revenue per hotel shopper on its sites as it transitions from a reliance on advertising clicks to a tilt toward hotel commissions with some hotel-metasearch and clicks on the side.
But could a TripAdvisor-Priceline or TripAdvisor-Google marriage, for example, even get past antitrust regulators in the Department of Justice or Federal Trade Commission?
There’s an argument to be made that the dog days of July or August — actually the waning months of 2016 as a whole — would be an opportune moment to sneak an acquisition past regulators as the Obama Administration prepares to say adieu. “They won’t have the commitment and resources to block an acquisition and play out a challenge in court,” argues one keen observer of the antitrust scene, referring to regulators.
Depending on who wins the 2016 presidential battle, a just-up-and-running Hillary Clinton Administration might not see an early antitrust fight as a priority, and a Donald Trump Administration would presumably be more friendly toward business and such corporate combinations than a Democratic administration, this line of thinking goes.
Three Big Online Travel Agencies Whittled To Two
Karina Lubell, who writes about antitrust issues for The Capitol Forum and previously was an antitrust associate at Shearman & Sterling in Washington, D.C., says the Department of Justice would likely view a Priceline-TripAdvisor merger as three market-leading players being reduced to two “and those kinds of deals are pretty tough to get cleared.”
In other words, if Expedia Inc., the Priceline Group and TripAdvisor are currently considered the three dominant U.S. online travel agencies — or a quasi online travel agency in the case of TripAdvisor — then a Priceline acquisition of TripAdvisor would hurt consumers and hotels, airlines and car rental companies because it would be just two big companies, Expedia and Priceline, seemingly dictating terms, including commission rates, instead of the previous three and this would harm competition.
Lubell notes that when the Department of Justice last year decided not to stand in the way of Expedia acquiring Orbitz Worldwide, the regulators looked at the competitive issues through the framework of the U.S. online travel agency market and not the broader U.S. travel market, with the former being a higher bar for Expedia-Orbitz and presumably Priceline-TripAdvisor to clear. That’s because each of these companies command larger market shares of the online travel agency market than they do of the wider and more competitive travel market as a whole.
“When the DOJ cleared Expedia-Orbitz, it had little to do with their combined market share in travel bookings, Lubell says, referring to the wider U.S. travel market, including both online and offline. “The DOJ essentially wrote off the role of Amazon, Google and Facebook, and instead DOJ limited the relevant market to OTAs. Yet, DOJ found that Orbitz was a relatively small and declining player and that companies like TripAdvisor would be able to constrain the merged Expedia-Orbitz’s ability to raise prices.”
But TripAdvisor would seem to play a more important role in furthering competition than Orbitz did because most of the global hotel chains have signed up as TripAdvisor Instant Booking partners and they likely pay lower commissions to TripAdvisor than they do to Expedia or Priceline. Regulators might take the view that TripAdvisor, therefore, puts downward pressure on Expedia’s and Priceline’s commission rates, and removing TripAdvisor as a quasi, third online travel agency might mean that hotel commissions in the U.S. could rise.
TripAdvisor, by the way, is a quasi online travel agency because it just facilitates the bookings for hotels on TripAdvisor while the hotels are still the merchant of record and handle customer service and all that entails.
Nothing Stopping Antitrust Clearance
But Dan Wasiolek, a senior equity analyst at Morningstar, believes that a TripAdvisor-Priceline marriage would have little problem getting past antitrust regulators given the breadth of the overall travel market and TripAdvisor’s relatively smaller sales compared with Expedia and the Priceline Group.
“I also don’t subscribe to that argument that a PCLN+TRIP [merger] would not clear,” Wasiolek says. “EXPE and Orbitz combined two very large OTAs and got clearance because combined the two still only had mid-single digit of the $1.3 trillion travel bookings market, and because of the perception of Google, Facebook, Amazon, Instant Book as competitive threats.”
“Further, in 2014, Orbitz had nearly $1 billion in revenue while TRIP had $1.25 billion in revenue that year,” Wasiolek says.
Even if the Department of Justice or Federal Trade Commission did not view a potential TripAdvisor-Priceline deal through the less rigorous perspective of competitive implications for the wider travel market, as Wasiolek suggests they might, there has been enough change in the evolving U.S. online travel market to suggest that healthy competition would survive such a merger.
For example, major hotel chains such as Marriott, Hilton Worldwide and Hyatt have undertaken marketing campaigns to convince consumers to book on the hotels’ websites rather than on Expedia.com or Priceline’s Booking.com and the hotels are offering lower rates to consumers on their own sites than they are providing to the online travel agencies.
Google, meanwhile, is ramping up its own version of instant booking or Book on Google, as it is called. Last week, Google officials noted in a press briefing that any hotel is eligible to partner with Google to have Google process the hotel’s bookings on Google.com or in its apps, and they said Google is working directly with hotels and aggregators to expand the program.
To be clear, Priceline officials have not said publicly they seek to acquire TripAdvisor and one potential obstacle could be long-time ties between the major stockholders of Expedia, Priceline’s main rival, and TripAdvisor.
Neither has Google articulated a desire to acquire TripAdvisor.
But in the U.S. travel industry, if a large acquisition of a company such as TripAdvisor, with its $10 billion market cap, is to be made, then Expedia (which previously owned TripAdvisor), Priceline and Google are usually considered prime candidates as buyers because they have the resources to pay for such a merger.
If Google were to acquire TripAdvisor — and there is a ton of enmity between the two companies because of Google’s preferential positioning of its own products over those of competitors — some might argue that it would be seen as less of an antitrust concern in terms of the online travel agency market than Priceline-TripAdvisor because there would still be three major U.S. booking players — Expedia, Priceline and Google-TripAdvisor.
On the other hand, Google and TripAdvisor already are two almost mandatory marketing vehicles for U.S. travel brands and blending them together could see online advertising rates spike upwards.
One much-speculated about transaction involving TripAdvisor that likely wouldn’t draw much antitrust scrutiny is the possibility that TripAdvisor could buy out TripAdvisor chairman Greg Maffei’s Liberty TripAdvisor Holdings, which is TripAdvisor’s controlling shareholder. In that way TripAdvisor, which has previously been a subsidiary of IAC and later Expedia Inc., could stay independent and control its own destiny.
Are the Justice Department and the Federal Trade Commission Under Pressure?
Lubell contends that the Department of Justice and the Federal Trade Commission are likely to toughen their stance on mergers and acquisitions in the future because there have been myriad rumblings from the U.S. Senate that regulators have fallen down on antitrust enforcement.
“There has been a lot of criticism from Capitol Hill in recent months that DOJ and FTC have been lax on enforcement so people tend to think the agencies are likely to scrutinize deals more carefully going forward,” Lubell says.
On the other hand, she points out, “both U.S. antitrust agencies have recently successfully challenged mergers. FTC recently blocked both Sysco-US Foods and Staples-Office Depot. It is currently involved in several lawsuits involving hospital mergers.
“DOJ has seen similar enforcement success recently with its challenges to Halliburton-Baker Hughes and GE-Electrolux. The past 18 months has seen an unusually large number of enforcement actions for both agencies.”
Remember Priceline’s Silence About Expedia’s Acquisitions?
The Priceline Group, which is currently conducting a CEO search after Darren Huston resigned several months ago, hasn’t made any large acquisitions since buying Kayak for $1.8 billion in 2013 and OpenTable for $2.6 billion in 2014.
Meanwhile, In 2015, while Expedia acquired everything in sight, including Travelocity, Orbitz Worldwide and HomeAway, the Priceline Group was notably silent and didn’t publicly raise any objections to the acquisition spree. There are many possible reasons for such a stance on the part of Priceline.
“Big competitors often won’t try to block a merger that they might later try to match,” one antitrust wonk opines.
That was a reference to the possibility of a Priceline-TripAdvisor marriage trying to make Priceline whole following Expedia’s purchase of Travelocity, Orbitz Worldwide and HomeAway in 2015.
Says the antitrust expert: “My sense is that, in general, regulators don’t like 3-2 transactions but in this case, given the rapid evolution of the market, it is much more complicated than that.”