Why Opentable Was Worth $2.6 Billion To Priceline (Hint: There's A World Takeover Involved)
On Friday, we learnt that airline booking giant Priceline will buy restaurant-reservation website OpenTable for a staggering $2.6 billion. Priceline will pay out $103 per share of OpenTable stock to seal the deal, a hefty 46 percent premium above the price OpenTable shares closed at Thursday night. And of course, like any great high-stakes merger, you get to imagine some huge briefcases of money — the purchase will reportedly be happening in cash.
And the enormous price tag raises the question: why does Priceline want OpenTable so much? There's no certainty just yet what Priceline will do with the service, but there are some pretty safe guesses. The two companies operate in distinctly different areas of pre-planning, but are highly similar services nonetheless, increasing the ease (and ostensibly at cut-rate prices) with which people can book rooms, buy tickets, or make reservations.
The deal is expected to go down in the third financial quarter of 2014, leaving us all with a few months to ponder what's to come. Here are three reaons in which Priceline could be buying OpenTable, thus scoring themselves a major coup — albeit, it's gotta be said, a costly one.
1. Everyone Loves the One-Stop Shop They Know
Obvious, but this is probably the lynchpin of the arrangement — thanks to the popularity and recognizability of the OpenTable name, and the financial firepower of Priceline. While Priceline surely could've started working on their own restaurant reservation service, and avoided buying out OpenTable altogether, they must have valued the name enough to make it a prized buy. This is why Priceline has no plan to absorb the OpenTable brand — if you pay that much for brand recognition, you don't throw it away.
For consumers, the additional convenience of having everything assembled in one spot could be a big hit. if you knew you could book a reservation days in advance at, say, your favorite Spanish restaurant, at the same time as you're buying your plane ticket and hotel room in Majorca, well, that's a pretty appealing offer.
2. Under Priceline's Ownership, OpenTable Can Go Global
This isn't to say that OpenTable is exclusively an American service — they also operate in Japan, the U.K., Canada, France, Germany and Mexico among others — but their international presence pales in comparison to that of Priceline. Via the aforementioned Bookings.com, they're also a genuine titan of the European travel market.
It's pretty ovious that Priceline will try to push OpenTable into new countries and regions. For some perspective on their relative potencies, OpenTable stock rose to just over $100 per share prior to the markets opening Friday morning, while Priceline shares sit at over $1,200. Basically, Priceline can take OpenTable to the big time, in ways it may not have reached on its own.
3. It's the Wave of the Future, So Why Not Get In Now?
Perhaps the most telling outcome of the announced acquisition is the effect it's having on other, similarly web-based properties. Groupon, Yelp, and GrubHub have all seen their stocks surge following the news, for a pretty good, if pretty speculative reason: now that OpenTable has all that Priceline money behind it, investors are reckoning that these other website may seek bigger corporate suitors to keep pace.
The positive trading days for those three companies begs the question of how much they could net, as well. With OpenTable going for $2.6 billion, it's hard not to envision these sorts of popular, social-planning websites as at least potential billion-dollar entities, should some bigger corporate power come a-knockin'.
And if that happens, they'd be wise to consider it. If they ended up with the OpenTable deal, so to speak, it'd be pretty sweet — despite the acquisition, there isn't any anticipated management shakeup, and it'll still planned to operating as an independent business under their new parent company, according to CNN Money.