Move viewed as positive for hotel-booking website; benefits unclear for technology giant
Technology titan Tencent Holdings has offered a nonbinding proposal to increase its stake in travel website eLong Inc, a move that would result in the company being de-listed in the U.S. and controlled by a small group of major shareholders.
The offer came after the NASDAQ-listed Chinese company reported a wider loss for the second quarter.
Tencent, which already holds up to 15 percent of eLong, has offered $18 per American depositary share. That would be a 27 percent premium to the closing price on Monday, according to a press release issued by eLong late on Monday.
Tencent will need approval from the other major shareholders to complete the transaction, which would raise its stake in the company to what analysts estimate would be 36.5 percent.
China's largest online travel service provider Ctrip.com International, which would remain the largest shareholder of eLong with 37.6 percent after the deal, had a positive initial response to the proposed purchase.
"Ctrip and Tencent have always maintained a sound relationship… Tencent, which runs one of the nation's largest social networking services, can help explore eLong's potential together with Ctrip," a PR representative of Ctrip told the Global Times on Tuesday.
Analysts think that with the support of the largest shareholder, Tencent's proposal will get approval from eLong's board.
Tencent's purchase will enhance investors' appetite for eLong, which was said to have a plan to float on the A-share market after going private, Wei Changren, general manager of Beijing-based Jinlü Consulting, told the Global Times on Tuesday.
"Leaving the U.S. stock market is a good option for eLong when U.S. investors' confidence in the company has been dampened as a result of an unsatisfactory performance," said Wei.
On Monday, eLong reported a net loss of 356.4 million yuan ($57.4 million) in the second quarter of 2015, compared with a net income of 31.5 million yuan during the year-earlier period.
The stock closed down 1.93 percent at $14.22 on Monday, much lower than the $22 opening price on October 28, 2004 when the travel company was listed and it jumped about 20 percent to above $17 on Tuesday by press time.
Jiang Hao, eLong's CEO, said in an internal announcement disclosed by media reports on Tuesday that a key reason for considering Tencent's proposal would be to get listed on China's stock market, which can offer higher valuations than in the U.S. market. Neither Tencent nor eLong could be reached for comment on this matter by press time.
With this proposal, eLong follows in the footsteps of many Chinese Internet companies including Renren Inc, once dubbed the Facebook of China, and Qihoo 360 Technology Co, an antivirus software provider, which received going-private proposals in June.
The common theme in all these transactions, analysts said, is a combination of lower regulatory burdens and higher valuations for IPOs in China.
"The going-private deal can benefit eLong not only financially, but also in terms of its business development," Lin Wenbin, an industry analyst with Beijing-based Analysys International, told the Global Times on Tuesday.
With the deal, "eLong can completely focus on its core business - online accommodation booking - after going private. Staying in the U.S. stock market, the company has to make an effort to develop other online travel businesses so as to attract investors from larger U.S.-listed rivals such as Qunar and Ctrip," said Lin.
Ctrip's PR representative agreed with this analysis, saying that eLong, which is the second-largest online travel company in terms of revenue from hotel bookings in China, aims to focus solely on online accommodation reservations.
Both Lin and Wei said that Ctrip, the largest shareholder of eLong, will be the biggest beneficiary of the Tencent purchase.
"Ctrip can further consolidate its position in China's online travel industry by tapping eLong's hotel resources and user base," said Wei.
He noted that Ctrip, despite being the industry leader, faces great challenges from rivals such as Qunar, backed by Internet giant Baidu Inc, and Alitrip, a proprietary online travel platform operated by Alibaba Group Holding.
A report by Analysys International showed on Monday that Ctrip dominated China's 106.2 billion yuan online travel industry in the second quarter with a share of almost 38.7 percent, closely followed by Qunar with 30 percent. Alitrip came in third position with about 11.9 percent.
However, analysts said that Tencent, which owns China's most popular mobile social networking service WeChat, is only a strategic investor in eLong. Thus, it's unlikely to further its presence in the promising online travel market simply with this transaction.
