Losses in fourth quarter raise speculation about combination
Travel website Ctrip.com International on Monday denied market rumors that it is close to completing a merger deal with its rival Qunar.com that would create an online travel service giant with a market capitalization of over $10 billion.
The rumors have been circulating since 2014, and speculation was raised again after the two travel websites both reported losses in the fourth quarter of 2014, and their majority shareholders' frequent transactions in the two companies' shares.
"Compared with the two companies, the shareholders behind them are more eager to see a merger between the two especially due to the bigger losses of Qunar," Beijing-based newspaper International Finance News reported Monday, citing an unnamed insider.
Search engine giant Baidu Inc has been the largest shareholder of Qunar after it purchased a 60 percent stake in the online travel agency in June 2011.
But Qunar has dragged down Baidu's business performance in the last few years. Qunar posted a net loss of 1.84 billion yuan ($296.4 million) in 2014, a big increase from a loss of 187 million yuan in 2013.
Ctrip posted a net profit of 240 million yuan in 2014, but its profitability has also worsened since the third quarter of 2014 and incurred a loss of 224 million yuan in the fourth quarter.
"Baidu will benefit most from a merger of the two companies, and catch up with the other two Internet giants Alibaba Group and Tencent Holdings in the online travel market," the report quoted the insider as saying.
Baidu and Qunar both declined to comment on the issue when contacted by the Global Times Monday.
Shi Kaifeng, a PR officer with Ctrip, also said the market suspicion is groundless.
"We do not have any information about any merger deal currently," he told the Global Times Monday.
Analysts still hold a wait-and-see attitude about the market rumor.
"A merger is likely given the industry trend, as such a move could help relieve cutthroat competition between Ctrip and Qunar," Wei Changren, CEO of Beijing-based Jinlü Consulting, told the Global Times Monday.
In February, Didi Dache and Kuaidi Dache, two of China's leading taxi-hailing apps, announced a merger. Last month, online classified advertising operators 58.com and ganji.com also reached a merger deal.
Wei said it is more difficult for the merger between Ctrip and Qunar given the huge size of the two companies. Ctrip's market capitalization is nearly $9 billion and for Qunar it is about $5 billion.
Previous media reports said the difficulty of the merger mainly lies in the competition for the controlling power in the new company that would be formed.
Ctrip's CEO Liang Jianzhang told Shanghai-based Oriental Morning Post in April 2014 that "Ctrip will keep its independent operation on a long-term basis," while Qunar's CEO Zhuang Chenchao noted in a company e-mail that "all the negotiations Qunar is conducting with various investors are based on the premise of Qunar's management controlling its own future."
There are also concerns about a monopoly if the merger deal is finally reached. Cui Guangfu, CEO of online travel agency elong.com, said in April 2014 that the merger will lead to a monopoly, and need to get approval from Chinese authorities, news portal tech.qq.com reported.
Ctrip and Qunar accounted for 58.5 percent of China's online travel market in terms of revenues in 2014, up from 45.8 percent in 2013, according to data from IT consultancy Analysys International.
"If the deal is reached, the new travel giant will likely dominate the online airfare booking business in China," Wei said.
