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Kayak Software (KYAK) Lowered To 'Hold' By Deutsche Bank After Priceline (PCLN) Acquisition

 November 09, 2012 02:29 PM

(By Balachander) Kayak Software Corp. (NASDAQ: KYAK) shares were lowered to "Hold" from "Buy" by Deutsche Bank analyst Lloyd Walmsley after the online travel site agreed to be acquired by Priceline.com Inc. (NASDAQ: PCLN) for $40 per share in cash/stock.

Walmsley raised price target on the stock to $40 from $37.

The analyst believes the deal helps KAYAK with two big initiatives: 1) it puts Priceline in the booking path and 2) helps with international expansion. Furthermore, we believe there are significant revenue synergies between the two companies.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

Furthermore, Walmsley believes there are significant revenue synergies between the two companies.

"We think there is a less than 20 percent chance another bidder would enter the fray," Walmsley wrote in a note. "Expedia (NASDAQ: EXPE) would be the only other company that would make sense, and would have had multiple opportunities to acquire KYAK in the past if it really wanted to."

"Google (NASDAQ: GOOG) is also unlikely given the overlap in meta-search strategies, and more importantly, the regulatory scrutiny," Walmsley said.

[Related -Expedia Inc (NASDAQ:EXPE): A Look At Underappreciated Meta-Search Asset]

"Risks on the downside include the transaction not being approved for regulatory scrutiny, which we see as a low probability given the $250m domestic revenue run rate vs. the $3B domestic travel ad market," the analyst wrote. "Upside risk includes a higher acquisition offer."

Shares jumped 27.71 percent to trade at $39.64 on Friday. Over the past year, the stock has been trading between $26.01 and $40.41.

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