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Originally published November 8, 2012 at 8:03 PM | Page modified November 9, 2012 at 6:31 AM

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Priceline negotiates $1.8 billion Kayak deal to grow travel empire

The move was seen as a way to expand its business at a time when it has been tougher to land new customers and it has been fighting off new rivals.

Los Angeles Times

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SAN FRANCISCO — Looking to expand its travel empire in a sluggish economy, plans to buy its younger, fleet-footed competitor Kayak Software in a $1.8 billion deal.

Kayak was created by the same executives who helped launch other travel sites including Bellevue-based Expedia, Travelocity and Orbitz. The Norwalk, Conn., company went public in July after delaying its offering more than a year while it waited for the market to strengthen.

The strategy of waiting seemed to work. The shares jumped 28 percent on the first day of trading and recently peaked at $37. But Priceline, the world’s most valuable online travel agency, will pay 57 percent more than Kayak’s IPO price.

The deal includes about $500 million in cash and $1.3 billion in stock and assumed options.

The move was seen as a way for Priceline to grow its business at a time when it has been tougher to land new customers and it has been fighting off new rivals.

Kayak is a breakout company from the latest Internet boom and raised $91 million in its July IPO. It has a slew of deep-pocketed competitors, including Google as well as up-and-comers such as Hipmunk.

The boards of each company have signed off on the deal, but it still must be approved by shareholders and regulators. It’s expected to close in the first quarter of 2013.

Priceline said Thursday that Kayak would continue to operate independently under the Priceline umbrella. Kayak helps travelers compare flights, hotels and rental cars on hundreds of travel websites.

“Kayak has built a strong brand in online travel research and their track record of profitable growth” shows the company’s “popularity with consumers and value to advertisers,” said Priceline CEO Jeffery Boyd.

The announcement was made after the markets closed.

Travelers won’t be bidding bon voyage to Kayak. Chief Executive Steve Hafner said the acquisition would help accelerate his company’s growth.

Kayak also reported Thursday that third-quarter earnings jumped on higher sales.

Profit rose to $7.2 million, or 19 cents per share, from $4 million, or 18 cents per share, a year earlier. The company said it would have earned 26 cents per share excluding stock-based compensation and certain other costs. Analysts surveyed by FactSet had expected 19 cents per share.

Revenue rose 29 percent to $78.6 million, topping analysts’ $77.4 million forecast.

Priceline shares closed at $627.87, down $6.74 or 1 percent. In after-hours trading, they dropped $13.87, or 2.2 percent, to $614.

Shares of rival Expedia fell 4 percent after-hours on the news, but Orbitz surged 13 percent to $2.39.

Kayak was founded in 2004 and has influential backers including well-known venture capital firm Sequoia Capital. It took years to go public; the company originally filed in 2010.

Material from The Associated Press is used in this report.

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