Keeping Track Of China Mergers: Now – Ctrip, Qunar, Tencent Cluster
This week’s deal between two of China’s largest travel services companies racks up the third high-profile merger this year in China’s tech space, following the teaming up of Didi Dache and Kuaidi Dache, and Dianping and Meituan.
The alliance of Ctrip and Baidu-controlled Qunar will create a dominant player in the domestic hotel and air ticket booking market as China’s tech titans continue consolidation. Interestingly, Tencent factors into this deal too since Ctrip’s stake in travel site eLong is being bought out by Tencent. Now Ctrip will be juggling relationships with both Tencent and Baidu.
In another ironic twist, the deal comes less than half a year after Qunar rejected an unsolicited buyout offer from Ctrip, before then agreeing to a $500 million strategic investment.
Both Ctrip and Qunar have received significant venture funding. In 2011, Baidu paid $306 million for a majority stake in Qunar, then took the business public in 2013. Qunar’s investors also include GGV Capital (lead investor Jixun Foo), GSR Ventures, Hillhouse Capital Group, Lehman Brothers, Mayfield Fund and Silver Lake Partners. Ctrip’s backers include IDG Capital Partners, SAIF Partners, SIIC Investment and The Carlyle Group. Neil Shen of Sequoia Capital China was a co-founder of Ctrip.
Based on market close figures, Ctrip is valued at $12.7 billion, and Qunar at $5.6 billion. As part of the deal, Baidu will hold a 25% voting interest in Ctrip, and Ctrip will take a 45% stake in Qunar. Baidu will continue its existing cooperation with Qunar, and help to channel significant traffic to Ctrip through its leading search engine.
Over the past few years, both Ctrip and Qunar have experienced substantial cost increases in product development, product sourcing, and sales and marketing. Despite rising year-on-year revenue, profits have continued to narrow as competition in the online travel industry increases. Combined, Ctrip and Qunar will control 70 to 80 percent of China’s hotel and air ticket markets, allowing them to keep costs down as well as capitalize on rising domestic and international tourism by an adventurous rising middle class.