USA Interactive makes e-commerce bid

The proposed offers would value the three publicly traded subsidiaries at about 7.5 percent above their trading prices at the close of business Friday.

Investor reaction was mixed. After rising higher in early trading, by market close Expedia was up $2.10, or nearly 3 percent, to $73.63; Hotels.com gained $1.16, or 2.4 percent, to $49.05; and Ticketmaster added 56 cents, or 2.6 percent, to $21.95. Shares of USA Interactive fell $3.60, or 12.6 percent, to $24.90.

USA Interactive Chairman Barry Diller acknowledged in a statement that the proposal was a big step for his company, but he said it was necessary to act "in cohesive concert with all parts of the enterprise, where all of our businesses are aligned and integrated.

"We in no way regard our action today as 'hostile,'" Diller continued. "In fact, we think that what we propose...is great news for the public shareholders of Expedia, Hotels.com and Ticketmaster."

The units involved are online travel agent Expedia, Ticketmaster--which sells tickets to concerts, games and other live events--and Hotels.com, which sells hotel rooms on the Web.

Analysts said USA Interactive's bid for its subsidiaries is an effort to streamline the financial structure of Diller's company. The issue came to the fore last week when USA Interactive had trouble acquiring Interval International, a travel services company, for about $578 million.

"I think they felt that it was taking a lot of time because of the financial structure of the company," said Jared Blank, travel analyst at Jupiter Media Metrix. "(USA Interactive) proposed using (Ticketmaster) stock and (Ticketmaster) balked at that."

"I think Diller feels he'll be able to make acquisitions faster and easier by consolidating all these units," said Blank.

It wasn't immediately clear how receptive the subsidiaries would be to the offers. Expedia and Ticketmaster released statements Monday saying they would each form special committees to evaluate the proposal. USA Interactive controls nearly all of the voting power of both Hotels.com and Ticketmaster.

James Winchester, an analyst at Lazard Freres & Co., said in a research note that the offer for Hotels.com was "disappointing." He had a 12-month price target on that stock of $68.

Thomas Underwood, an analyst with Legg Mason, said it was doubtful that USA Interactive could buy its subsidiaries. "We do not expect any of the three publicly traded subsidiaries to be 100 percent acquired by USA," he said.

According to Underwood, the management of Expedia and Hotels.com have enough shares to vote against the deal with USA. Meanwhile, both companies are competitors and could conclude they are better off on their own.

Blank, however, said Hotels.com and Expedia are likely to remain separate even if USA Interactive acquires them. "Barry DIller has made it seem that it's more about ownership than squishing everything together and being run by one person," said Blank.

The proposed deals would grant Expedia shareholders 2.6969 USA Interactive shares for each of their Expedia shares. Hotels.com shareholders would get 1.8064 shares of USA Interactive, and Ticketmaster shareholders would get 0.8068 shares.

If, after the deal, USA Interactive owns more than 90 percent of any of the companies, it will merge that company with the parent.

Last year, USA Interactive sold its entertainment unit, which includes the company's cable network, the Sci-Fi Channel, a film company and TV production unit, to Vivendi Universal in a deal valued at $10.3 billion. That was supposed to free up the company to focus on e-commerce.

USA Interactive also owns the Home Shopping Network and Match.com, The company announced plans to buy its stake in Expedia in July 2001, eventually acquiring about 65 percent of the company's basic shares, including the 33.7 million shares owned by Microsoft.