USA Networks to buy control of Microsoft's Expedia

USA Networks today expanded its operations in the online travel market by buying a controlling stake in Expedia from Microsoft.

New York-based USA Networks announced that it will buy up to 37.5 million shares, or approximately 75 percent, of the currently outstanding shares in Expedia. Under the deal, Microsoft will transfer its 33.7 million shares and warrants in the online travel agency to USA Networks, subject to proration.

Also announced today was a deal in which USA Networks will buy Woburn, Mass.-based National Leisure Group Inc., an online cruise and vacation package agency, along with a plan to launch the USA Travel Channel on cable TV.

"For some time, we have believed travel to be a key building block in offering goods and services in interactive formats," said Barry Diller, chairman and CEO of USA Networks. "These announcements make that belief a reality: Expedia ... will be at the heart of our activities. Together with the National Leisure Group ... and the development of a broad-based commerce travel channel, I can't think of a better knitting together of the convergence of entertainment, information and direct selling."

USA Networks will put the new acquisitions under the USA Travel Group banner along with its interests in the Hotel Reservations Network (HRN), giving it formidable power in the online travel industry. The group is expected to generate approximately US$4 billion in gross bookings this year, according to USA Networks. The company said gross bookings are expected to grow by about 40 percent next year.

Analysts say the deal will likely benefit USA Networks as it continues to profitably meld the worlds of television, cable, travel and the Internet.

"Travel is the largest segment in e-commerce, and I think it means a lot in the ability to interact with consumers down the road who want to take a trip and watch television," said Krista Pappas, an analyst at Gomez Inc. in Waltham, Mass. "This makes for a very comprehensive package of services," along with USA Networks' existing holdings, she added.

"They'll be able to obviously compete on quite a high level with Travelocity," the largest player in the online travel market, Pappas said. Expedia is currently the second-largest travel business on the Internet.

The acquisition "continues to demonstrate the strength of travel e-commerce," said Lorraine Sileo, an analyst at PhoCus Wright Inc. in Sherman Conn.

"Even with this economic downturn, consumers are turning to e-commerce travel [sites]," she said. By combining the reach of USA Networks in cable television with Expedia, National Leisure Group and HRN in the travel industry, the combination will be powerful, Sileo said.

Expedia was launched by Microsoft in 1996 and had its initial public offering as a separate company in 1999.

Diller will become chairman at Expedia; Richard Barton will be retained as CEO and president.

"By joining USA Networks, we access an unrivaled array of media, direct selling and travel assets that will enable us to continue the strong growth momentum we currently carry," Barton said in a statement. "Expedia will be ideally positioned to extend its reach both online and on television."

Rick Belluzzo, president and chief operating officer at Microsoft, said in a statement that "Expedia will continue to be a strategic partner for MSN and Microsoft, while USA Networks can provide the breadth and depth in the travel and media industries that will help spur Expedia's future growth."

Microsoft will own approximately 3 percent to 5 percent of USA equity, depending on proration.

USA Networks will also contribute $75 million in media time to Expedia over five years and provide an option to participate in the newly started USA Travel Channel.

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