With one deal, Cendant Corp. is moving from an also-ran to one of the top players in the booming online travel business.
The company is one of the world's biggest travel and real estate service providers, thanks to years of strategic acquisitions of major brands such as Ramada, Days Inn and Century 21.
Now it is shoring up one of the gaps in its business through a blockbuster deal, the $1.25-billion purchase of online travel agency Orbitz Inc.
The acquisition announced Wednesday puts Cendant in a battle with Travelocity and Expedia, while providing a much-needed financial boost to the five major airlines that founded Orbitz in 2000.
Expedia will remain the market leader with a 49 percent share, but Cendant will move into the second spot with 22 percent, analysts said.
"One glaring hole to their business is they didn't have a solid platform in the form of a first-class travel agency, a strong client-facing brand," said Tim Fidler, research director for Ariel Capital Management.
"By going out and picking up what I think is a good company, they have a very good underlying set of businesses from which they can build," Fidler said.
Samuel Katz, chairman and chief executive of Cendant's Travel Distribution Services Division, declared as much Wednesday when he said the addition of Orbitz "immediately places Cendant in a leading competitive position in the domestic online travel distribution business."
"I think we had a presence, maybe No. 4, but the Top 3 were much bigger," Katz said. "This makes us one of the leading companies" in an industry that is growing quickly and figures to corral up to 30 percent of travel bookings over the next couple of years.
He said Cendant would maintain Orbitz and CheapTickets, which it owns, as "differentiated consumer brands in the leisure travel sector." Cendant also operates Galileo, an airline and hotel reservation service used by travel agents.
The deal "provides a foundation for significant synergies in technology, fulfillment and operations, which will allow both Orbitz and CheapTickets to continue to aggressively market and promote their respective brands while increasing profitability," Katz said.
Orbitz will remain in Chicago, and some of Cendant's online operations will be moved there, he said. Orbitz Chief Executive Officer Jeff Katz will leave the company after the transition, "but we expect nearly all the top people to stick around," Samuel Katz said. The Katzes are not related.
American Airlines, Continental Airlines, Delta Air Lines Inc., Northwest Airlines and United Airlines founded Orbitz to increase Internet ticket sales. At the time, online bookings accounted for 6 percent of travel sales, the company said in a filing with the Securities and Exchange Commission. That grew to 19.5 percent by 2003.
The agreement calls for Cendant to acquire all the shares of Orbitz for $27.50 each, a 32 percent premium over Tuesday's closing price. Orbitz stock closed Wednesday at $27.17, up $6.40 a share, or 31 percent.
The announcement had little effect on Cendant stock, however. Volume was almost double its recent average, but the stock fell 9 cents a share to close at $21.93.