Are Priceline and Expedia Fighting for a Deal With This Company?

In this segment from Market Foolery, the team considers the potential for one of the major online travel agencies to pursue an acquisition of TripAdvisor (TRIP -0.83%) now that shares trade at their lowest levels in years. The value of such a deal is undeniable.

A full transcript follows the video.

This video was recorded on March 8, 2017.

Mac Greer: Gilly asks, what are the odds that Priceline (BKNG -0.45%) and Expedia (EXPE 0.55%) are both calling TripAdvisor at the same time to discuss an acquisition? Matt?

Matt Argersinger: Ah, yeah, Gilly, I think with TripAdvisor at a five-year low, the odds are probably as good as they've ever been right now. And there's been rumors in recent years about an acquisition. I think the best fit is probably Priceline. One, it would really boost Priceline's share of U.S. travel customers. We know booking.com is their big platform. Super popular in Europe. Not so huge here in the U.S. So, it really boosts their marketing potential here in the U.S. TripAdvisor has 350 million unique visitors each month. That's a huge number. Something like almost 400 million reviews. Mac, I know that you're responsible for at least a dozen or so reviews.

Greer: I am. I get their emails, I'm one of their top-rated reviewers, at least in this ZIP code.

Ron Gross: Wow, we're here with royalty.

Greer: That's right.

Argersinger: So, there are a lot of eyeballs that Priceline can gain by buying TripAdvisor. And TripAdvisor has this growing activities business, which is getting some kind of scale. If you think about Priceline as mostly getting people to the destination, while TripAdvisor has things they can actually do when they get to the destination. So, it helps Priceline become more of a one-stop shop OTA. What I'll say though, in reality, I don't think Priceline will ever get the chance, because I think Expedia would be -- if TripAdvisor was compelling enough -- they would actually be the one to make the acquisition. And that's because there's a strong relationship between TripAdvisor and Expedia through Liberty Interactive. And I'll explain that for those who don't know, and you kind of have to bear with me here. Barry Diller and John Malone, longtime friends, occasional business partners. Diller is Expedia's chairman. Liberty Interactive, which is controlled by John Malone, owns 16% of Expedia. Liberty Interactive, in turn, owns a controlling stake in TripAdvisor through its Liberty TripAdvisor tracking stock. 

Gross: For those that are still with us --

Argersinger: It goes on. The CEO of Liberty Interactive, Greg Maffei, also happens to be the chairman of TripAdvisor.

Gross: Am I crazy, or wasn't TripAdvisor spun out of Expedia?

Argersinger: It was. It's not controlled by Expedia except to the extent that Liberty Interactive has a stake in Expedia and TripAdvisor.

Greer: At this point, I almost want to go back to the stock buyback discussion. [laughs] 

Argersinger: I think, at today's price, an acquisition of TripAdvisor looks compelling to both. But I would say Expedia has, probably, the first dibs. Priceline would have to make a very compelling case and pay a pretty big premium.

Gross: And Priceline is a much bigger company, $85 billion or so, versus Expedia at $18 billion, TripAdvisor now, as Matt said, only a $6 billion company in. So you could get this done with stock, or even low-cost debt if you wanted to. But Priceline is more likely.

Greer: See, I like the Expedia angle because I like Priceline, I love the reviews, I contribute reviews and I post reviews, but I don't buy and I don't transact -- I'm sorry, I just blew that. I love TripAdvisor. I contribute reviews, I read reviews. But the problem for me and TripAdvisor is I don't transact through TripAdvisor. I find the hotel or the place I like, and then I go to Expedia, or I go to the hotel's website. If Expedia buys them, then it's that one-stop shop, I could book my flight on Expedia, I could book my hotel on Expedia, and I can read the reviews.

Argersinger: That's absolutely right, and that's the challenge. TripAdvisor is trying to move to that booking platform where you can do everything there.

Greer: Inertia, I'm not doing it.

Argersinger: [laughs] You're right. So, something like an Expedia acquisition accelerates that, and makes that redundant.