Priceline to Buy OpenTable in Deal Valued at $2.6 Billion
Priceline Group Inc. (PCLN) is buying OpenTable Inc. in a deal valued at $2.6 billion to add restaurant bookings to its travel business as the industry steps up investments in local listings and mobile services.
The all-cash offer of $103 per share for the popular Internet restaurant reservation company is 46 percent higher than OpenTable’s closing price yesterday. The deal is expected to be completed in the third quarter, the companies said in a statement today.
Priceline, already the biggest U.S. online travel agent, is betting on OpenTable to take advantage of the growth in local business services that draw in customers via smartphones and tablets. The acquisition would deliver more than 15 million diners per month across more than 31,000 restaurants via online bookings.
“We see this deal as likely part of Priceline’s move into offering a much broader range of local e-commerce services to what is a very attractive customer set,” said Mark Mahaney, an analyst at RBC Capital Markets, in a research note. “We believe this deal is a no-brainer.”
News of the deal sent other local-business Internet stocks higher. Yelp Inc., a leading business-review service, rose 14 percent at the close in New York. Others rose as well, including GrubHub Inc., Groupon Inc. (GRPN) and LiveDeal Inc.
OpenTable makes money by helping restaurants accept and manage reservations via the Web and mobile applications. The company has added other services, including a mobile application that lets customers pay from their tables.
For OpenTable, the deal is “a good way to get demand in new markets, just a natural bigger-pocketed partner to scale the business internationally,” said Praveen Menon, an analyst at Bloomberg Industries. “They’ve been largely a U.S. restaurants-type business. This is where Priceline comes in.”
In addition to expanding outside the U.S., where OpenTable generates about 81 percent of its revenue, Priceline will also benefit from OpenTable’s mobile business, Menon said.
OpenTable’s stock soared 48 percent to $104.48 in New York, slightly more than the offer price of $103 a share. The stock had dropped 11 percent this year before today. Priceline, based in Norwalk, Connecticut, fell 3 percent to $1,189.30 and had gained 5.5 percent this year through yesterday.
“This opportunity with OpenTable is a really big market that fits well with us,” Priceline Chief Executive Officer Darren Huston said in an interview. “We are excited about building it out because it is global and it fits with the customers we already have.”
The takeover price is 53 percent more than OpenTable’s average stock price in the prior 20 days. That’s the highest premium since 2007 for a North American Internet deal of more than $1 billion, according to data compiled by Bloomberg.
Revenue at OpenTable is forecast to climb 19 percent to $226 million this year, according to the average of analysts’ estimates compiled by Bloomberg.
OpenTable “would be a good asset for anyone trying to build out a local or mobile ecosystem,” Tom White, an analyst with Macquarie Group Ltd., said last month.
The company sold shares to the public in May 2009 at $20 each, and the stock soared 59 percent on its first day of trading.
Benchmark, a venture capital firm, was the biggest shareholder in OpenTable when it went public. Since the IPO, Benchmark has reduced its holdings from 5.3 million shares, or 24 percent of the stock outstanding.
Shareholders representing about 7 percent of the stock -- primarily OpenTable board members -- have already agreed to support the deal. Among them is Bill Gurley, an OpenTable board member and a general partner at Benchmark.
Benchmark’s biggest venture investments have included Uber Technologies Inc., Zillow Inc., Zipcar Inc., EBay Inc. and Yelp Inc. The firm holds a stake of about 5.4 percent in Twitter Inc., valued at about $1.2 billion, according to data compiled 7by Bloomberg.
Founded in 1998, OpenTable will continue to be based in San Francisco, according to the statement. The deal, which has been approved by both companies, includes a $91 million termination fee. OpenTable also agreed not to solicit other takeover offers.
Priceline has used acquisitions to spur growth and surpass Expedia Inc. in revenue. Last year’s purchase of Kayak Software Corp., for about $1.7 billion, helped Priceline capture revenue in hotel search and the company is now making its largest purchase ever to branch out in restaurant bookings.
The OpenTable deal is the first big move for Huston, who took over in January with a challenging task: continue to fuel growth after his predecessor Jeffery Boyd, who stayed as chairman, generated a 100-fold stock surge in 11 years.
OpenTable has a strong position in a key market, said Ronald J. Hottovy, who goes by “R.J.” and is an analyst at Morningstar Inc. in Chicago, with a hold rating on OpenTable stock.
“The powerful network effect they own is the biggest reason for the acquisition target,” he said. “The likes of Google and Yelp have struggled to get in the space because OpenTable has its dominance there.”