Priceline Group Inc (NASDAQ:PCLN) announced last Friday it has entered into a definitive agreement to acquire online restaurant reservations powerhouse OpenTable Inc (NASDAQ:OPEN) for $103/share. When you do the math, that means Priceline is paying a relatively steep $2.6 billion for the UK-based firm.
The acquisition is expected to finalize by the end of the third quarter of this year, and the deal has been ratified by the boards of both companies.
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Equity research firm Raymond James published a report on Friday, June 15th, after the Priceline Group Inc (NASDAQ:PCLN) – OpenTable Inc (NASDAQ:OPEN) was deal was announced, to provide investors with their take on the acquisition.
Raymond James currently rates Priceline Group Inc (NASDAQ:PCLN) as a Strong Buy.
Rationale for the deal
Raymond James analysts Aaron Kessler and Ben Cohen begin the report by highlighting Priceline Group Inc (NASDAQ:PCLN)’s rationale for the deal. They note that OpenTable Inc (NASDAQ:OPEN) is a “natural extension” for Priceline, as the restaurant reservation space is largely “targeting the same customers (i.e., travelers are diners).”
Kessler and Cohen do express some reservations about Priceline Group Inc (NASDAQ:PCLN) comments on their rationale for the rather expensive acquisition. “…while the deal does add an adjacent market for Priceline, significant revenue synergies and their ability to easily expand to other international markets may still prove challenging, as OpenTable had largely struggled outside of the UK market and actually pulled out of a couple of markets previously (Spain and France) that were note appropriate models for OpenTable.”
Relatively high price
Priceline’s potential synergies
Kessler and Cohen point out Priceline Group Inc (NASDAQ:PCLN)’s belief it can get synergies from folding in OpenTable Inc (NASDAQ:OPEN) and the instant big boost in its international presence “helps explain the significant premium.” According to their analysis, OpenTable will generate close to $88 million in EBITDA compared to $3.4 billion for Priceline in 2014, “implying ~2.5% additive to Priceline’s EBITDA estimates.”
Priceline Group Inc (NASDAQ:PCLN) is up almost $10 on the news, trading at $1198.83 as of 1:23 PM ET today.