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eLong Inc. Message Board

  • ibanker_nyc ibanker_nyc Jun 26, 2012 8:28 PM Flag

    Expedia and Tencent Ownership - part 1

    So, I read the latest 10-K to figure out ownership, amount invested, and average purchase price for Expedia and Tencent


    a) Since going public in 2004, LONG sold to EXPE 14.275 mm ADSat average price of $11.63
    b) In May 2011, EXPE purchased 2.7mm ADS at average price of $15.25
    c) In November 2011, EXPE purchased from Renren 3.147mm ADS at average price of $23.00\

    Total: Amount Invested by EXPE in acquiring 67% of LONG: $279,559,193

    Average cost basis for EXPE: $13.89 -> this is essentially the floor on the stock as per EXPE, unless EXPE got this investment horribly wrong.


    a) In May 2011, Tencent purchased 5.535mm ADS at average price of $15.25

    Total: Amount Invested by Tencent in acquiring 16% of LONG: $84,389,378
    Average cost basis for Tencent $15.25 -> this is essentially the floor on the stock for Tencent as per Tencent, unless Tencent got this investment horribly wrong.

    Valuation Base Case:
    Even if you take the lesser of the "floor on stock" as perceived by the two largest investors, who collectively own 83% of LONG, the min. per ADS value is $13.89

    Valuation Aggressive Case:
    Since EXPE purchased renren's stake for $23, one can argue that the "floor on stock" is $23 and this was in November 2011. However, potential counters to this argument: a) Broad macro deterioration in China, b) intense competition from CTRP and Quinar (BIDU's subsidiary), c) potential premium paid by EXPE to Renren to acquire this stake, d) EXPE overvalued LONG due to higher expectations on business and profitability (I doubt this is the case since EXPE has been on LONG's board and has consolidated its financials, so doubt they would just go blindly with LONG management's expectations.

    What it means for stock from here:

    a) Buyback was a very clever way for EXPE and Tencent to increase its ownership without spending an additional dime. If i were to take a bet, LONG will continue buying back the stock till it hits either $13.89 (EXPE's cost basis) or $15.25 (Tencent's cost basis).

    b) If profitability improves at LONG, EXPE may buyout LONG at $23 (Tencent will gain over their $15.25 price per share and LONG could argue that this is what Renren was paid) and public shareholders who represent 10% would be more than happy at $23 given the current depressed price levels.

    This strategy could be similar to what EBAY did with GMarket. They bought CEO's stake in August 2008 for $24 and at that time YAHOO! owned 10% of GMKT. In May 2009, EBAY put in an offer to acquired Yahoo's stake and other shareholders for $24 (essentially the same price that CEO was paid). Shareholders approved and GMKT is now 100% owned by EBAY.

    c) The $8.75 per share in cash represents a "true floor" on stock as long as LONG does not lose money in its operations.

    d) If the next two quarters are disastrous for CTRP and LONG, they both might come to the negotiating table and decide to go easy on the couponing. CTRP may try to buy LONG, but that wiill not happen since LONG is EXPE's only foothold in China. No other US-player has a significant ownership/operations interest in China.

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