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Ahead of the Bell: Priceline shocks travel world

NEW YORK (AP) -- Priceline's surprising pickup of Kayak just months after the competitor's initial public offering has sparked investors' attention across the online travel world.

Priceline.com Inc. late Thursday said it struck a deal to buy Kayak Software Corp. for $1.8 billion. The cash-and-stock deal values Kayak at 29 percent higher than its Thursday closing price of $31.04.

Shares of Kayak — which just went public in July — jumped 26.6 percent before the opening bell on Friday to $39.30. Priceline slipped about 2 percent, or $10.37, to $617.50.

Priceline.com Inc. will pay 57 percent more than Kayak's IPO price.

Kayak was created by the same executives who helped launch other travel sites including Expedia, Travelocity and Orbitz Worldwide Inc.

"While Kayak's acquisition is not cheap, the deal makes strategic sense," Cantor Fitzgerald analyst Naved Khan said in a note to clients. That's because it increases Priceline's presence in the U.S. travel market, which continues to post healthy growth rates. It also provides Priceline with Kayak's valuable search tool that allows customers to see prices on several different travel sites at once.

He kept a "Buy" rating and a $750 target on Priceline's stock.

Khan said the deal might initially be a negative for Expedia Inc., the largest online travel agency, but it shouldn't be hurt the company in a big way. Expedia shares are down 5 percent in premarket trading.