Ctrip & Qunar: China’s travel merger

The merger between China's two leading online travel firms Ctrip and Qunar could herald more consolidation in the country's fiercely competitive online and e-commerce markets.

Chinese travel company Ctrip.com International has completed an all-share merger with Qunar, a technology provider and subsidiary of Baidu, as the two look to cooperate in China's burgeoning online travel market. 

The partnership between Ctrip and Qunar was announced on Monday less than six months after Qunar rejected an unsolicited buyout offer from Ctrip, raised $800 million via a follow-on offering, and received a combined $500 million worth of new investment from US private equity firm Silver Lake and an unnamed investor.

Under the terms of the announcement Ctrip will have a 45% voting interesting in Qunar, while Baidu, which controls Qunar, will take a 25% stake in Ctrip. The share swap represents a 36% premium to Qunar’s closing price on Friday, valuing the US-listed company at $7 billion.

Ctrip will exchange 11.49 million newly-issued ordinary American Depositary Shares for 178.51 million Class A ordinary shares and 11.45 million Class B shares in Qunar Cayman Islands. The exchange rate is 0.725 Ctrip ADS for each Qunar ADS. 

Four Ctrip representatives will join Qunar’s board of directors, including chief executive officer Liang and chief operating officer Jane Sun. Baidu’s CEO Robin Li and its head of investments Tony Yip have been appointed to Ctrip’s board.

"We are excited by this transaction, which we believe will help build a healthy travel ecosystem in China,” said James Liang, chairman of Ctrip. "This milestone transaction will enable us to focus on providing the best travel products and services to our travellers."

The tie-up promises to help the two companies benefit from China's fast-growing middle class. Increasing numbers of individuals and families are looking to embark on internal and international holidays as their wealth levels rise. 
The country's holiday market reached Rmb33.26 billion ($5.23 billion) in 2014, with the number of outbound Chinese tourists reaching 10.7 million. That marked the first time they had ever exceeded 10 million, according to EnfoDesk, an industrial database that is part of Analysys International. 
“Tourist travel within China and outside is already a very big scene and it can only grow further from here,” said one source familiar with the transaction. 

Ctrip's share price closed 22% higher at $90.78 while Qunar's climbed 7.92% to $42.65. In contrast, the Nasdaq Composite index ended broadly flat. 

The two companies also agreed to combine their products and services amid fierce competition in China’s online market. Earlier this month, Meituan, a daily-deals website backed by Alibaba, and Diaping, a Tencent-backed restaurant review site, agreed to merge into one company, valuing the startups at $15 billion.

It is understood that JP Morgan worked with Ctrip in an advisory capacity on the share exchange. The US investment bank has good relations with Ctrip, having acted as sole bookrunner for its $1 billion convertible bond issue in June this year, along with a $800 million convertible bond in 2013. 

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