LV Internet business sold to travel firm for $95 mil. in stock

Tuesday, Feb. 1, 2000 | 11:21 a.m.

Las Vegas-based Travelscape.com Inc. is being acquired in a $95 million stock deal.

Expedia Inc., Bellvue, Wash., a company spun off by Microsoft Corp. late last year, announced Monday it bought two Internet travel companies in separate transactions.

In addition to acquiring Travelscape, Expedia bought VacationSpot.com Inc., an online reservation network for vacation homes, condominiums and bed-and-breakfast operations worldwide, for $82 million.

"This clearly shows that Expedia will be the leader in the Internet travel industry," said Tom Breitling, one of the co-founders of Travelscape.com. "They're already the leader in travel reservations and we're clearly the leader in Internet lodging space. The next big area to explode will be lodging, so there are some great synergies here.

"Expedia is the technology expert (the company is 84 percent owned by Microsoft) and we are lodging experts."

"The combination of the broad and unique selection of getaways from VacationSpot.com, discounted hotel rates from Travelscape.com and the Expedia hotel directory creates the largest most compelling lodging offering on the Internet," Richard Barton, president and chief executive officer of Expedia, said in a statement.

Barton estimated the new sites would increase Expedia's exposure on the Internet 20 percent. MediaMetrix, an Internet survey firm, said Expedia already is the most visited travel site on the Internet.

Monday, Expedia reported a fourth quarter loss of $23.2 million on revenues of $17.8 million compared with a loss of $5 million and revenues of $7.9 million in the same period in 1998.

Mary Meeker, an analyst who covers Expedia for Morgan Stanley Dean Witter, said Travelscape reported $68 million in revenues in 1999, making the deal particularly appealing to Expedia investors.

She said the acquisition of Travelscape.com and VacationSpot.com will enhance Expedia's reach and she reiterated her "outperform" rating on company shares.

Travelscape will retain its brand name and its presence in Las Vegas. No layoffs or staff changes are planned at the company's headquarters at the Lakes Business Park on West Sahara Avenue. The company has 220 employees and that total is expected to grow as the company continues to expand, Breitling said.

"We'll expand the call center and the customer service department as we grow," Breitling said.

Expedia now works with 65,000 lodging properties worldwide and provides 2 million room reservations per year.

Travelscape and Expedia began discussions on the deal last fall, but the two companies have been familiar with each other for months.

The two companies entered strategic partnerships with each other in early 1999, with Expedia offering travel reservations and Travelscape providing lodging reservations for travel packages.

Unlike most travel companies, Travelscape and its Las Vegas Reservations Systems division buy hotel rooms at wholesale rates from a variety of suppliers, then resell them at a profit. Most travel companies operate on a commission basis.

Currently, the company has contracts with more than 1,200 hotels in 240 cities worldwide.

The company has had aspirations for growth since it was founded by Breitling and Tim Poster in 1998 with one computer and one telephone line. The company started as a telephone reservation system, then switched its emphasis to the Internet as the online travel industry exploded.

When the company's website went live in January 1999, it had contracts with 335 hotels in 30 cities. Through a number of strategic alliances, the company has flourished.

In June, Travelscape.com registered with the Securities and Exchange Commission for a public stock offering, hoping to raise $49.9 million in 12 months. But the market for Internet companies grew sluggish as dozens of Internet start-ups emerged.

Travelscape.com decided in August to withdraw its registration statement after several postponements of its initial public offering by the lead underwriter, Piper Jafray.

At the time of the withdrawal, Travelscape vowed to try again in 2000. But the Expedia deal came up instead.

In hindsight, Breitling said the failure of the IPO worked in the company's favor.

"It turned out for the best because it made us explore all of our options," Breitling said. "It probably helped us get more serious about Expedia. We knew we wanted to work with a market leader and Expedia definitely is the leader."

Breitling said the best part of the deal is that he and his associates will continue to operate as they have in the past.

"We'll report to one person at Expedia, but they've said that they want us to continue to do what we do best," Breitling said.