Sabre Holdings Corp. initiated its $345 million cash offer to buy the outstanding equity in its Travelocity.com Inc. subsidiary Tuesday, even after key board members of the Internet travel service declared the bid insufficient. The offer isn`t likely to get far with shareholders at its current price, some analysts said.
Ever since Southlake-based Sabre
announced Feb. 19
that it wanted to buy the 30 percent stake it doesn`t own in Travelocity.com for $23 a share, the stock has consistently traded above that level, indicating investors expect more.
On Tuesday, shares in Fort Worth-based Travelocity.com closed at $26.22, off 38 cents.
“I`m pretty confident they`ll sweeten the deal with a higher offer,” said Robert J. Simonson, an analyst at William Blair & Co. in Chicago. “The question is, how high?”
Jennifer Dugan, an analyst at Merrill Lynch & Co., said she expects Sabre will wait out the situation a bit to see what happens to the stock price, adding, “I`m more inclined to think they raise the offer price than that they walk away.”
Sabre`s offer is set to expire on April 5, though it can be extended. Officials for Sabre and Travelocity.com declined to comment Tuesday on the developments.
Late Monday, a special committee of Travelocity.com`s outside and independent directors issued a statement describing the $23 price as “inadequate.” Travelocity.com said it will “fully advise” stockholders on its position within 10 business days.
Earlier Monday, Travelocity.com
said it`s the subject of 11 shareholder lawsuits seeking to block the deal because the price shortchanges investors.
Although Sabre offers Travelocity shareholders a 19.8 percent premium over the closing price on the trading day preceding the offer, it reflects a 5.6 percent discount from the average price on the preceding 60 days, according to the special committee. Travelocity.com stock traded as high as $51.88 in March 2000, when the company merged with Preview Travel Inc. to form a publicly held company.
Salomon Smith Barney Inc., which is advising the special committee, estimated the value of Travelocity.com shares at between $30 and $55 each, according to a Sabre filing Tuesday with the Securities and Exchange Commission. Sabre maintained its price is fair, in part based on an assessment from its advisers, Goldman, Sachs & Co., which evaluated Travelocity.com`s performance relative to key rivals.
Whenever a parent company seeks to buy the minority interest of a subsidiary, the proposal is fraught with potential conflicts of interest. Indeed, Sabre and Travelocity.com share the same chairman, William J. Hannigan
But the special committee reiterated in its statement that it seeks to protect the interests of the minority shareholders.If the committee were to reject the higher offer, it could run the risk that Sabre would settle for the status quo of 70 percent ownership, he said. Any competing bidder, meanwhile, would want Sabre`s blessing because the minority interest in Travelocity.com by itself wouldn`t offer sufficient control, Mr. Simonson said.
One scenario would be for Sabre to raise its offer by a few dollars per share, enough of an increase for the special committee to show it adequately represented the minority investors, Mr. Simonson said.
The Travelocity.com committee floated the idea of looking for an outside buyer last month, according to the SEC filing, and Sabre rejected the suggestion. In a letter, officials wrote that “regardless of the outcome of the offer, Sabre had no intention of selling any of its equity interest in Travelocity.”
Related stories on ITN:
(05/02/2002) Travelocity Reports Sabre`s Proposal is Inadequate
(04/03/2002) Travelocity.com Inc. Reports Filing of Stockholder Class Actions Lawsuits
(19/02/2002)Travelocity To Become A Wholly Owned Sabre Company