BENGALURU: India’s largest online travel agency MakeMyTrip will issue shares, worth nearly $960 million for the acquisition of rival portal ibibo Group, according to recent filings made by the Nasdaq-listed firm, on the largest consolidation deal in the internet market.
Singapore-registered Ibibo Group Holdings will also carve out its 14% stake in Naspers’ payments business PayU and 52% in business-to-business (B2B) online travel company Tek Travels before the transaction closes, with MakeMyTrip entitled to a payout on these assets in five years.
South African media and internet giant Naspers hold over 90% stake in ibibo Group, with the remaining held by Chinese internet giant Tencent and management. These shareholders will be allotted 38.97 million shares, or a 40% stake, of MakeMyTrip as a part of the all-stock deal with Naspers cornering a third of the combined entity.
At MakeMyTrip’s closing share price on Friday of $24.19, the combined entity is expected to be valued over $2.2 billion. MakeMyTrip has called for a meeting on December 9 for approval of the transaction from its shareholders.
The filings also show how aggressively ibibo Group, headed by Ashish Kashyap, was aggressively spending to take on MakeMyTrip during the last financial year, reporting higher losses despite revenues being a quarter of the rival. Ibibo’s losses soared more than doubled to $106.5 million during the financial year ending March 31, 2016, as compared to MakeMyTrip’s $88.54-million loss during the same period. Topline for ibibo Group also doubled, with net revenues standing at $38.9 million for the financial year but was a fourth of the MakeMyTrip’s $169-million net revenues.
Losses for the both the players shot up as they ramped up spending on marketing and discounts, with ibibo tripling advertising and sales promotion spending to $99 million during FY16. MakeMyTrip also increased this expenditure by 155% during the last financial year to $109 million, especially in the last quarter after raising $180 million from Chinese travel giant Ctrip.
In the quarters ending June and September 2016, MakeMyTrip continued the pace discounts and marketing expenditure spending a combined $100 million before announcing the deal to acquire ibibo.
But MakeMyTrip does not see this spending coming down, as it looks to increase penetration of online hotel booking increasing from 12-15% right now to 35-40% in the next two-three years, CEO Rajesh Magow told ET in October.
Tek Travels, which runs a B2B airline ticketing business under the brand name Travel Boutique Online, will be transferred to a Naspers unit. This company is valued at $78 million according to the filings, with MakeMyTrip getting a payment from Naspers in five years depending based on certain conditions.
The acquisition will add more cash to MakeMyTrip’s balance sheet, as ibibo shareholders Naspers and Tencent are expected to “contribute proportionate working capital upon the closing of the transaction.” MakeMyTrip had cash of $167.2 million at the end of September.
MakeMyTrip and ibibo deal comes as Yatra, now the second-largest player in the online travel space is expected to complete a reverse merger on Nasdaq by December. After the deal, Yatra will have about $82-million cash on its balance sheet, making it a strong competitor. Gurugram-based hotel brand OYO, which is backed by Japanese internet and telecom major SoftBank, also raised $60 million earlier this year.
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Source: Economic Times
