On Friday, Priceline (NASDAQ:PCLN) announced a deal to buy OpenTable (NASDAQ:OPEN) for $2.6 billion or $103 per share in cash. In an article entitled Why I Like Priceline's Move To Buy OpenTable, I explained why I believe the deal makes a lot of sense for Priceline. However, I do not believe Priceline is the only company that would benefit from owning OPEN, and thus I believe a higher bid, significantly above the $103 offered by Priceline, is likely.
Perhaps the most likely potential buyer of OPEN is Google. Google has talked about getting into the restaurant reservation business for a while and has already acquired online review platform Zagat. Buying OPEN would seem to make a lot of sense from a strategic point of view for Google. Also, Google has plenty of cash to offer significantly more than $103 per share for OPEN.
Facebook (FB) is also a potential buyer of OPEN. Facebook has made a number of interesting acquisitions, and buying OPEN would certainly be interesting. Facebook could make the OPEN experience more social by integrating the platform into Facebook. Like Google, Facebook has considerable financial resources and could easily offer more than $2.6 billion for OPEN.
Yahoo and Yelp are also potential buyers of OPEN. Yelp recently got into the restaurant reservation business with a purchase of SeatMe. While the company is a competitor of OPEN, it might make sense for Yelp to just buy OPEN. This is especially true, given the fact that Pricleine's sponsorship and plans for OPEN might make it very difficult to compete with the market leading platform, OPEN. Yahoo should also be mentioned as a potential buyer as the company has been making interesting acquisitions and has the financial resources to complete the deal. Other less likely, but still potential buyers, include Priceline's biggest competitor Expedia (NASDAQ:EXPE), and Amazon (NASDAQ:AMZN).
It does not make sense to use traditional metrics, such as PE ratio or price to sales, to value OPEN. Buyers are buying the platform that is OPEN, not just the business. Any potential buyer would likely have a plan for exponentially increasing earnings at OPEN. Currently, Priceline has set a floor valuation of $2.6 billion for OPEN. However, it seems like a case could be made that OPEN should be worth significantly more than $2.6 billion. The relatively small value of OPEN means that any new bidders could offer a significant increase in price, on a percentage basis, to OPEN shareholders.
OpenTable Trading Above Priceline Offer
OPEN table shares are currently trading slightly above the $103 per share offered by Priceline. This indicates that institutional money appears to believe that a higher offer is likely.
How To Trade It
If no new bidder emerges for OPEN then, at the current price of $105, the stock has roughly $2 of downside. However, if at least one new bidder emerges, the stock would have considerable upside. OPEN's all-time has was above $115, and I believe any additional bids would come in above this level. Furthermore, if another bidder emerges, I believe Priceline could make a higher offer driving shares up even more. In short, I believe a long position in OPEN is a good decision based on the current risk/reward. Perhaps the best way to play the binary situation at OPEN, either an additional bidder will emerge or not, is by buying call options.
Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in OPEN over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.