Expedia Buyback Boosts Diller's Stake

The $9-billion online travel firm plans to purchase almost 40% of its stock

by Ben Steverman

Expedia (EXPE) will purchase a large portion of its stock this summer, boosting Chairman Barry Diller's ownership stake, but dashing rumors for now that Diller would take the online travel site private.

The company's plan to buy back 116.7 million shares for up to $3.5 billion would gobble up 38% of Expedia's total shares outstanding. Diller has owned 75 million shares, or almost 25%, of Expedia since late 2005, when Expedia was spun off from his Interactive/IAC Corp. (IACI). After the buyback, his stake would rise to 40%.

Diller and other Expedia insiders, along with major shareholder Liberty Media Corp., won't participate in the modified Dutch action. Shareholders can indicate how many shares they want to sell and at what price. Expedia is buying shares for not less than $27.50 and not more than $30. The stock jumped close to $30 in Tuesday's trading, from Monday's closing price of $27.50.

"With this action, we couldn't be clearer that the management and the board of this company are confident in the value of Expedia and its long-term future," Diller said in a statement.

Expedia has bought back shares before, but never on this scale. It bought 20 million shares in July 2006, announced a 20-million share buyback in August and finished a 30-million-share buyback in January.

Rumors spread last week that Diller was planning to take Expedia private, spin off its TripAdvisor business and cut 400 jobs, or about 6% of the work force. The company denied those reports.

In addition to TripAdvisor, Expedia runs the Expedia, Hotels.com, Hotwire and TripAdvisor sites. Standard & Poor's analyst Scott Kessler expects the company's revenue to rise 9% this year. The online travel market in the U.S. is "maturing," he wrote recently, with lots of competition and constraints on inventory. Much of Expedia's success will come from abroad, Kessler wrote. (S&P, like BusinessWeek, is a unit of the McGraw-Hill Companies.)

The next earnings announcement for Expedia comes on Aug. 2. Susquehanna Financial Group analyst Marianne Wolk expects profits to decline year-over-year because of high expenses from a major marketing push in Europe. However, Wolk has a "positive" rating on the stock. In a recent report, she cited the company's reinvigorated ad campaigns, international expansion efforts and an expected increase in ad revenue.

Steverman is a reporter for BusinessWeek's Investing channel.