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InterActiveCorp grabs onto Hotwire

The company formerly known as USA Interactive expands its online travel empire with the $685 million acquisition of Hotwire, a site that offers discounted hotel rates and airfares.

InterActiveCorp expanded its online travel empire Monday with the roughly $685 million acquisition of discount hotel and airfare site Hotwire.

IAC said it will pay $665 million in cash for Hotwire and will assume approximately $20 million of options and warrants. Hotwire recorded an estimated $110 million in net revenue in fiscal 2003.

Hotwire, which will remain a separate brand within IAC, identifies itself as an "opaque" travel site. People who use the site do not find out all the details about their flight or hotel room until after their reservation is made.

Formerly known as USA Interactive, IAC has rapidly expanded its network of Web-based travel assets through a string of acquisitions in the past half-year, including high profile buyouts of companies such as Expedia and Hotels.com. Through the acquisition of Hotwire, the company gains another discount rate provider and closer ties to air carriers such as American Airlines, United Airlines and US Airways, all of which helped form the venture in 2000.

IAC, which also controls Classic Custom Vacations, Newtrade Technologies, Travelnow.com, Interval International and TV Travel Shop, said Monday it will bring all of its travel industry holdings under a single unit dubbed IAC Travel.

"There is a tremendous potential for growth online, including opaque and price-sensitive travel segments," Erik Blachford, CEO of the IAC Travel unit, said in a statement.

In addition to airfare and hotel rates, Hotwire offers car rental reservations, cruise tickets and vacation packages.

Although the travel sector has been hurt by the slowed world economy and international worries such as SARS (severe acute respiratory syndrome), IAC continues to expand its portfolio. And according to at least one analyst firm, the online travel sector continues to grow. Internet research firm ComScore Networks estimated that consumer spending in the Web-based travel industry grew by 36 percent in the first eight months of 2003, compared with the same period last year. According to ComScore, the sector totaled $27.6 billion in overall spending from January 2003 through August 2003.

ComScore analyst Graham Mudd called the Hotwire acquisition a "logical step" for IAC as it gains entry to the opaque online travel business. Mudd said the travel sector is growing twice as quickly as all other e-commerce spending combined.

"We continue to see travel as one of the categories most suited for growth on the Internet," said Mudd, who added that spending within the industry continues to shift away from traditional travel vendors.

IAC CEO Barry Diller, a well-known Internet entrepreneur, has remained bullish on the online travel sector.

"It is not so long ago that these online travel services didn't exist," Diller said in a statement. "Travel is the largest business sector in the world, and (IAC) is every year going to increase its share of that activity."