China travel sites Ctrip, Qunar agree merger

Baidu, which paid $306 million for a majority stake in Qunar in 2011 before taking the business public in 2013, will hold a 25% voting interest in Ctrip. In turn, Ctrip will take a 45% stake in Qunar. The two companies have also agreed to cooperate across a broad range of products and services, with Baidu continuing its existing cooperation with Qunar.

The deal comes about four months after Qunar rejected an unsolicited buyout offer from Ctrip and then agreed a $500 million strategic investment, of which $330 million came from Silver Lake. It is also the third high-profile merger announcement this year in China's technology space, following deals between ride-hailing app operators Didi Dache and Kuaidi Dache and local services platforms Dianping and Meituan.

Ctrip shares closed up 22.1% on October 26 at $90.78, valuing the company at $12.7 billion. Qunar's stock gained 7.9% to close at $42.65 for a market capitalization of $5.6 billion.

Qunar searches for the best flight, hotel and package trip deals offered by a range of travel agents and aggregates the results based on price. It generates revenue by selling sponsored search services and display advertising to travel agents as well as by a providing web platform for travel agents with limited or no online presence. Ctrip provides accommodation reservation, transportation ticketing, packaged tour and corporate travel management services.

Much like the Didi-Kuaidi and Dianping-Meituan deals, the merger may alleviate some of the competitive pressure in the segment and allow Ctrip and Qunar to fully leverage growing domestic and international tourism. 

Qunar's revenue came to RMB1.76 billion ($283.1 million) in 2014, up from RMB850.9 million the previous year, but net losses increased to RMB1.85 billion from RMB187.3 million. This was in a large part due to ballooning product development, product sourcing and sales and marketing costs, each of which more than doubled year-on-year.

Ctrip also saw substantial cost increases in these areas. Despite revenue rising from RMB5.38 billion in 2013 to RMB7.34 billion in 2014, net income narrowed to RMB91.6 million from RMB906.4 million.

"We are excited by this transaction, which we believe will help build a healthy travel ecosystem in China," said James Liang, chairman and CEO of Ctrip, in a statement. "This milestone transaction will enable us to focus on providing the best travel products and services to our travelers. We believe this will create greater value to our customers, partners and shareholders in the future."

Both companies received significant amounts of venture capital backing in their early days. Neil Shen was a co-founder of Ctrip before moving on to lead Sequoia Capital's China business.

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• Topics
• Greater China
• Technology
• Consumer
• Investments
• China
• M&A
• TMT
• Consumer
• Silver Lake