• by Ross Fadner , September 29, 2004

New York-based Cendant Corp. Wednesday said it will buy online travel company Orbitz Inc. for $1.25 billion in cash. The real estate and travel services firm will pay $27.50 a share for Orbitz, which was founded and controlled jointly by five major airlines: AMR Corp.'s American Airlines, UAL Corp.'s United, Delta Airlines, Northwest Airlines, and Continental Airlines. Each of these companies will retain ownership stakes.

Orbitz's stock closed at $20.77 on Tuesday; Cendant's offer represents an "attractive" 32 percent premium, according to Orbitz Chairman and Chief Executive Jeffrey Katz. On Wednesday, Orbitz's stock surged 31 percent, closing at $27.17 a share.

Cendant also owns two other travel sites: consumer-facing CheapTickets and Travelport, a corporate travel site. The company said it will move the operations of CheapTickets and Travelport to Orbitz's technology platform, but each of the companies will remain separate. Cendant may also try to integrate Orbitz with one of its other properties, Galileo International, a reservation database system used by travel agents. However, such a move is likely to be hindered by Orbitz's contract with WorldSpan LP, another travel data provider, which runs out in 2011. The deal comes at a tough time for the airline industry. United recently filed for Chapter 11 for the second time, while Delta and American Airlines are both said to be headed in the same direction. Industry pundits say the sale of Orbitz will provide these struggling companies with a much-needed boost. The five airlines controlled about two-thirds of Orbitz's stock.

Since its June 2001 launch, Orbitz has seen substantial growth in visitation and sales. According to comScore Media Metrix, Orbitz ranks third in the travel category for total unique visitors at 13.3 million--behind InterActive Corp's Expedia, with just under 20 million uniques, and Cendant's own Trip Network, with 13.4 million. The travel category as a whole has accounted for 46 percent--or $33.7 billion--of online consumer spending for the year, through August 2004, according to comScore.

Orbitz went public in December 2003 at $26 a share. The company is debt-free--and, as of July, had about $200 million in cash. It has been profitable in its two most recent quarters. Cendant predicted Orbitz revenue of between $340 and $380 million for 2005.

Samuel L. Katz, Cendant's Travel Distribution Services Division chairman and chief executive, noted that the transaction expands the sector's distribution and technology capabilities and strengthens management.