The move comes shortly after USA Interactive said itthe shares it doesn't already own in the three units. Although the deal would simplify USA Interactive's financial structure, investors panned it, dropping shares 12 percent since the proposed deal was announced Monday.
"Market reaction...has precluded a quick process," the company said Wednesday in a statement. "Therefore, we will not commence any exchange offers in the near future."
Though the deal is temporarily on ice, USA Interactive said it still planned to acquire the shares without increasing the 7.5 percent premium offer based on Friday's closing prices. Analysts said USA Interactive won't overpay for companies it already controls.
"While we believe that it still makes strategic sense to bring the subsidiaries into the parent company, we believe the company can be patient and wait until the transaction makes more financial sense," said Katherine Styponias, an analyst with Prudential Securities.
"While we would suggest that the offered 7.5 percent premium was probably a starting point in the negotiations, we don't believe the company feels it is necessary to significantly raise its offer," she said.
USA Interactive shares closed Wednesday up 93 cents, or 3.7 percent, at $26.03. Hotels.com shares closed up 70 cents, or 1.4 percent, at $49.29; Expedia shares closed up $1.16, or 1.6 percent, at $73.19; and Ticketmaster shares closed up 59 cents, or 2.8 percent, at $22.
"This process doesn't have any kind of a locked down time clock. We have patience because our perspective is truly long term--and meanwhile, the businesses will continue to operate as effectively and efficiently as they have in the past," the statement read.
Even when he announced the proposal, USA Interactive Chief Executive Barry Diller acknowledged the challenges of the deal.
"There will be lots of talk about whether the premiums we have offered are fair," Diller said. "We, of course, think they are, given the stock prices of our subsidiaries and USA in relation to each other."
The move would streamline the financial structure of USA Interactive and allow the company to act cohesively. An analyst said that issue was raised a week ago when the company tried to use Ticketmaster stock to help acquire a travel services company and Ticketmaster balked.
The subsidiaries have formed committees to evaluate the proposal.
The proposed deals would grant Expedia shareholders 2.6969 USA Interactive shares for each Expedia share. 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.
"We'll work at this until it's done, with total patience and respect for the process and its participants--and with the conviction that, as strong as we are now at both the USA and public subsidiary levels, we'll be even stronger when we have a structure that aligns all of our interests," the statement said.
USA Interactive controls nearly all of the voting power of both Hotels.com and Ticketmaster, but analysts say 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.