The main reason an IPO (initial public offering) is considered is the impending expiration of a put/call window. When Expedia (EXPE) acquired Trivago in 2012, both companies decided to add a put/call rights option. Expedia’s call rights meant that it had the right to purchase the remaining shares from Trivago owners at a fair price.
Trivago’s owners had the put rights, which means they had the right to sell their remaining shares to Expedia at a fair price. The rights could be executed for 50.0% or 100.0% of the remaining shares on the third and fifth anniversaries of Expedia’s Trivago acquisition, or December 2015 and December 2017, respectively.
The December 2015 window was postponed to March 2017 since both Expedia and Trivago decided to explore the possibility of an IPO.
Most demergers, stake sales, or spin-offs are an attempt to unlock the underlying value of either the parent, the subsidiary, or both. That’s achieved in two ways. One, it allows users to assign a correct value to each of the company’s businesses. And two, it calls for focused management at both companies, which gives each business the opportunity to grow to its complete potential.
The Expedia-Trivago scenario is no different. According to Expedia’s CEO (chief executive officer) Dara Khosrowshahi, the IPO will allow investors to value Trivago as a stand-alone company.
No stake sale by Expedia
Unlike TripAdvisor’s spin-off, the Trivago stake sale is not a spin-off. Expedia won’t be selling any of its shares in Trivago.
EXPE makes up 1.4% of the Guggenheim S&P 500 Pure Growth ETF (RPG). It also invests 0.99% in Expedia’s archrival Priceline (PCLN) and 0.63% in TripAdvisor (TRIP). However, it has no holdings in leading Chinese OTA (online travel agency) player Ctrip.com (CTRP).