China travel site agrees Tencent-backed take-private

Vehicles controlled by Tencent and Ctrip, plus two other entities of unspecified origin, will pay $18.00 per share for all outstanding American Depository Shares (ADS) in eLong, according to a filing. This represents a 24.1% premium to the closing price on the last trading day before the offer was announced last August.

The transaction will be financed through a combination of cash and fresh equity - in part contributed by Tencent - while Ctrip and one other investor will rollover their stakes into the acquisition vehicle. The buyer groups controls around 78% of the outstanding shares.

Tencent held a 15% stake in eLong when the original buyout offer was submitted. It paid $84.4 million for its interest in 2011, investing alongside Expedia, which put in $41.2 million to increase its holding to 56%. Elong received several rounds of funding ahead of its NASDAQ IPO in 2004.

Expedia remained the majority owner until May of last year. The US-based online travel services player exited its 62.4% interest for approximately $671 million to several investors, including Ctrip, which paid $400 million for a 37.6% stake. Keystone Lodging Holdings - the PE-owned parent of 7 Days Group until its acquisition by Shanghai Jin Jiang Hotels late last year - also participated.

ELong provides a platform through which travelers can book hotels, guesthouses, apartments and other accommodations, as well as air and train tickets. The company generates most of its income from hotel bookings. It reported RMB1.09 billion ($175.5 million) in revenue for 2014, little changed from RMB1 billion in 2013. However, the net loss widened to RMB268 million from RMB168 million.

The take-private, which still requires shareholder approval, comes at a time of consolidation in China's internet sector, including travel services. Late last year, Ctrip and Baidu-controlled Qunar agreed an all-share merger. Four months earlier, Qunar rejected an unsolicited buyout offer from Ctrip and then agreed a $500 million strategic investment, of which $330 million came from Silver Lake.

Both companies had seen substantial increases in product development, product sourcing and sales and marketing costs eat into their bottom lines.

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