Terms of the deal call for Norwalk, Conn.-based Priceline to pay $40 per share for Kayak, a premium of 29% over the target's $31.04 Thursday close. Priceline will pay $1.3 billion in stock and $500 million in cash for total equity consideration of $1.8 billion, with Priceline also acquiring about $150 million in cash sitting on Kayak's balance sheet.
Kayak, also of Norwalk, offers comparison shopping, allowing buyers to examine hundreds of travel sites at once when searching for flights, hotels and rental cars. The company, which went public in July selling 3.5 million shares at $26 apiece, processes more than 100 million user queries each month.
Priceline, an online travel agency, said the deal would expand its offerings and bring it valuable new technology.
"Kayak has built a strong brand in online travel research and their track record of profitable growth is demonstrative of their popularity with consumers and value to advertisers," Priceline CEO Jeffery H. Boyd said in a statement. "Kayak also has world class technology and a tradition of innovation in building great user interfaces across multiple platforms and devices."
The deal could create an uncomfortable relationship between Kayak and some of its most important partners. The company's search tools return results from Priceline along with many of the buyer's top competitors, online agencies such as Expedia Inc., Sabre Holdings Corp.'s Travelocity and IAC/InterActiveCorp.'s Hotwire.com.
Kayak was facing its own competitive issues. The company was part of a consortium that spoke out against Google Inc.'s 2011 purchase of ITA Software Inc. for $700 million, part of the search giant's plan to expand in Kayak's marketplace. Microsoft Corp. also has a travel search tool.
Boyd told analysts Thursday that the company intends for Kayak to operate independently under existing management including Kayak co-founder and CEO Steve Hafner.
In a statement Hafner said Priceline's "global reach and expertise will accelerate our growth and help us further develop as a company."
Kayak was formed in 2004, and raised more than $200 million in venture funding from investors including General Catalyst Partners, Sequoia Capital LLP, Accel Partners, and Oak Investment Partners before its initial public offering.
A Bingham McCutchen LLP team including partners Michael Conza, Laurie Cerveny, Thane Scott, Russ Isaia, Stephen Alexander, Davina Garrod and Anthony Carbone represented Kayak.
A Sullivan & Cromwell LLP team including partners Keith Pagnani, Brian Hamilton, Juan Rodriguez, Matthew Friestedt and Ronald Creamer Jr. represented Priceline.
After a shakeup that claimed the jobs of co-CEOs Jürgen Fitschen and Anshu Jain, Deutsche Bank's global head of M&A Henrik Aslaksen is leaving the bank. For other updates launch today's Movers & shakers slideshow.
The Deal's Rhonda Schaffler speaks with Marc Shaffer an M&A transaction advisory partner with Crowe Horwath. Marc discusses Crowe Horwath's new study, Steering Successful Growth: Value Capture in M&A. More video