Expedia Up On Speculation It Will Go Private

Expedia (EXPE) shares were sharply higher Friday morning on buyout speculation. In a brief research note, Stifel Nicolaus analyst Scott Devitt notes that the chatter is that the company will go private at $30 a share, spin-off TripAdvisor and cut 400 people, or 6% of its workforce.

Devitt says a deal makes sense for six reasons:

• Discussions around Liberty Media’s (LINTA) 22% ownership stake in Expedia “have been ongoing for years.”
• Last quarter, Liberty management discussed TripAdvisor as a separate business from Expedia and for the first time ever segmented TripAdvisor as a separate entity in its earnings release, accounting for 6.7% of revenue
• Expedia also discussed the new “media” business in detail on its call and has done several small media tuck-in acquisitions in the past several months
• TripAdvisor, he says, is worth somewhere between $900 million - $1.5 billion “and receives nothing close to this in terms of implied valuation within Expedia.”
• Devitt says Liberty could be paid for its stake in EXPE with the TripAdvisor ownership stake and cash (tax mitigation) or EXPE could spin out TripAdvisor as a separate public company allowing Liberty to either maintain its ownership of EXPE as a private company or even allow Liberty to be a source of funding in a private transaction
• He says EXPE is “statistically cheap,” at 13.6x estimated 2008 unlevered free cash flow; he says the returns to a private investor in a going private scenario would yield north of a 6% FCF yield before any headcount reductions or leverage benefit.

Expedia Friday morning was up $1.64 at $26.10.

EXPE 1-yr chart:

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