Travelscape.com to be purchased for $81.8 million in stock

Trevor Hayes

Wednesday, Feb. 2, 2000 | 12:21 p.m.

The parade of big-money dot-com deals has made a stop in Southern Nevada with the nearly $90 million acquisition of Las Vegas-based Travelscape.com by a company controlled by software giant Microsoft Corp.

Travelscape, which books airline, hotel, car rental and cruise reservations online, will be bought by Expedia, an Internet travel service 85 percent owned by Microsoft.

The deal announced Monday was possible because each company filled a different niche in the Internet travel industry, according to Travelscape Chairman and co-founder Tim Poster.

"What this deal does is put our inventory and our prices with (Expedia's) reach," said Poster.

When the Travelscape site went live in January 1999 it had contracts with 335 hotels in 30 cities and now offers reservations at more than 1,200 hotels in 240 cities worldwide.

Expedia operates the Expedia.com travel service, which provides customers with assistance in booking air, car and hotels in addition to vacation packages and destination information.

Poster said Travelscape is more of a travel consolidator, while "historically (Expedia) has just been an online travel agent."

As a consolidator, Travelscape contracts for hotel rooms and is able to set its "own prices and adjust prices according to our supply and demand," said Poster. "We get the difference between what we pay for the room and what we sell it for."

That allows Travelscape to take advantage of a "much greater gross margin than you would ever have" as an online travel agent, according to Poster.

Under terms of the deal, which was announced after the market closed Monday, Expedia will issue approximately 3 million shares, options and warrants, valued at $81.8 million, in exchange for full ownership of Travelscape and the assumption of approximately $8 million in long-term debt.

Expedia also announced it will acquire VacationSpot.com for about $70.9 million in stock in a separate transaction.

VacationSpot provides a reservation network for vacation rentals from homes to bed and breakfasts. Its VacationSpot.com and Rent-a-Holiday.com Web sites offer accommodations at 4,000 destinations in 100 countries.

Expedia was attracted to Travelscape's "incredible success in their business model as a hotel consolidator and in interacting with customers," said Expedia product manager Suzi LeVine. "They give us this very powerful access to the hotels they have relationships with."

They are "the first key acquisitions so far for Expedia," LeVine said.

She said the acquisitions are part of the company's goal "to be the one place where we help bring everything travel to everyone everywhere."

Expedia can offer a mix of accommodation "from an apartment in Paris to staying at the Paris Las Vegas," LeVine said.

Travelscape and its subsidiaries are the exclusive travel booking companies on many Web sites. The arrangement gives their online partners a percentage of the revenue from bookings made through those sites.

As a result of the purchase, Poster expects Travelscape's "staff to double over the next couple of quarters." The company employs 225 people in the Las Vegas Valley. Primary staff increases will be in support staff and at its call center.

Poster said it's Las Vegas' biggest Internet deal ever and might help spur more Internet business in Southern Nevada.

"We believe this will finally shed some light on the Internet business that is in Las Vegas," Poster said. "Las Vegas has yet to be on the map of cities with significant Internet business. This deal will be the beginning to change that."

He specifically cited the work of Travelscape competitor Lowestfare.com and PurchasePro.com, an e-commerce service company.

While the $92 million Travelscape acquisition is a big deal, it is still only slightly more than one-half of 1 percent of the $162 billion America Online-Time Warner merger announced Jan. 10.