chenner2011's  Instablog

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Over the past years, I've had experiences in investment banking with Goldman, management consulting with McKinsey, risk mgmt with a Nobel prize winner, operation of a small startup, and investing personally and for friends. I enjoy identifying macro trends and matching the economic stories of... More
  • OPEN Deal Is Not Strategic But Tactic, This Will Drive OPEN Price Down 0 comments
    Jun 16, 2014 5:21 AM | about stocks: OPEN

    OPEN: news analysis

    Target price: N/A

    Opentable received a bid from Priceline today. Interesting. Normally I would expect travel and hotels to join hands, but travel and restaurants? What seem to be in common is that both allow reservation online. By allowing reservation from a cohort of restaurant eaters to join the platform of online reservation for travel, the seemingly little overlap between the two suddenly looks like a benefit to Priceline rather than an awkward partner.

    But let's look a bit closer. Besides transforming one cohort to another, are online travel reservation customers really going to also book restaurants online, at the same time? Maybe, maybe not. I am not convinced the real synergy exists all that much between the two except for a reactive deal that allows Priceline to gain new customers who are not shy from making online reservations. Therefore, I believe it's a tactic deal rather than a strategic one. PCLN closed at 1189.30, down 2.99% on Friday, 6/13/2014.

    If I were right, a tactic deal would not gain much notice from other potential suitors such as Google, Yelp, Yahoo and the alike. Therefore, I think the current OPEN price of 104.48 (as of Friday, 6/13/2014) is a bit rich given the offering price is 103 and the market is only a few % away from the all time high. Typically risk arb offers a discount to the offering price of 103, but in our case, the stock price is trading at a premium to the offering price.

    I would not be a buyer of OPEN at this point because given the tactic nature of the potential deal, I am less concerned with other bidders for OPEN. If this thesis was true, you should see OPEN price falling over the course of the next weeks to a month.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: OPEN
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