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USA Interactive to snap up Expedia

The company holds a 54 percent stake in the online travel agency but wants to buy it out entirely in a stock-swap deal valued at $3.3 billion.

USA Interactive is buying online travel agency Expedia outright, as the travel industry braces to cope with business turbulence from the threat of war.

USA Interactive, which holds a 54 percent stake in Expedia, said Wednesday that it will acquire the remaining shares in a stock-swap deal valued at $3.3 billion. The company planned to buy out the remaining stake last year, but backed away after the markets frowned on the deal.

The buyout plan comes amid turbulent times for the travel industry, which is expected to see a decline in sales as people curtail their travel plans in the face of war in Iraq. Airlines have been rocked by dramatic declines in ridership and by bankruptcies.

USA Interactive said the acquisition will allow the multifaceted company--which owns, or holds large investments, in electronic retailing sites such as, services sites as Ticketmaster and travel sites as simplify its corporate structure.

"We are continuing to consolidate our businesses and get clarity," said Barry Diller, chief executive of USA Interactive, during a conference call with investors.

Expedia shareholders will receive nearly 1.94 shares of USA Interactive for every share they hold in the online travel company. Shares of USA Interactive fell $2.19, or about 8.3 percent, to $24.30 in morning trading on the Nasdaq composite index. But Expedia shares rose $7.51, or about 19.3 percent, to $46.41.

During the conference call, Diller refuted suggestions that USA Interactive used the heightened threat of war as a way to pick up Expedia's shares at a cheaper price.

"If we waited for the day after war, it would have precluded us from having done the deal for a while," he said.

Expedia's stock has been on a roll since mid-February, when it was trading at nearly $30 a share. The stock has climbed roughly 30 percent since that period, rising 15 percent in the past eight days alone on a split-adjusted basis.

Diller said that Expedia is in a strong financial position. The online travel company is moving toward revenue of $194 million for the first quarter and adjusted earnings of at least 25 cents a share, according to USA Interactive. Those forecasts currently exceed Expedia's estimates of revenue of $186 million and earnings of 22 cents a share, based on its operating budget, the company added.

USA Interactive, however, said its newest calculations were made without including the prospects for war.

Despite the turbulent times, Diller remains bullish on the travel industry. "Where there is life, there is travel," he said.

As USA Interactive looks to streamline its corporate functions, it will have the full attention of Diller, who Wednesday also announced he was resigning as chief executive of Vivendi Universal Entertainment. He noted his role at Vivendi was never intended to be permanent and USA Interactive will remain a stakeholder in the entertainment company.

USA Interactive is expected to close the Expedia in the summer, pending regulatory and shareholder approvals.