Wednesday, August 03, 2005

P.Dilly: Interactive Spins Off Expedia

Diller moves fast.

Really fast.

With the travel environment on cool, Internet mogul Barry Diller decided to spin off Expedia from its holding company, Interactive Media.

A spin off occurs when an independent company is created through selling or distributing new shares for an existing part of another company.

As a broker trainee a couple of years ago, I always told clients that spin offs were the quintessential way for companies to "unlock value" and do what's "best for shareholders."

Back then, we were loading up on larger pharmaceuticals that were spinning off their nanotechnology-oriented businesses.

Nano, whose translation in Greek means dwarf, was hot.

Today, one cannot apply the same adjective to travel.

Point being that I was wrong to assume back then that all spin offs were a positive sign.

Each spin off has to be dissected for its underlying cause.

Let's quickly look at Expedia's.

Consensus among analysts seems to be that with travel slowly getting back on its feet, travel businesses are less dependent on Expedia, which makes money by buying discounted blocks of rooms from major hotels and then selling them back to travellers.

Diller's decision will give investors a shot at buying two well-regarded online travel properties, advocates say.

On Tuesday, Diller said that the divestiture will alleviate confusion among investors.

Interactive is seen by many as too "hodgepodge" a company, he added.

What do we is think the most logical reason for Diller's move?


Online travel has matured.

Orbitz, Priceline, and especially Travelocity have all retarded Expedia's growth, shaved their margins, and irreperably accosted their business model.

It's a great time to get out, trim some fat off the company, and let the others duke it out.

Good one, Barry.

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