Ctrip.com (CTRP) is Upgraded by Goldman to Buy

(“Baidu”), pursuant to which Baidu has exchanged 178,702,519 Class A ordinary shares [[1]] and 11,450,000 Class B ordinary shares of Qunar Cayman Islands Limited (“Qunar”) beneficially owned by Baidu prior to the consummation of the transaction in exchange for 11,488,381 newly-issued ordinary shares of Ctrip. The exchange ratio represents a 36 percent premium to Qunar’s closing price on Friday, valuing the company at $7 billion. As part of the deal, Ctrip has won seats on Qunar’s board, and Baidu seats on Ctrip’s board. The 52-week high of Ctrip.com worldwide, Ltd. (NASDAQ:CTRP) is $87.62 and the 52-week low is $40.74.

Such mergers are getting extremely popular in China’s technology sector as a way of countering intense competition between rival companies. Chinese Internet search giant Baidu Inc., which backs Qunar, would take about a 25% stake in Ctrip.

“We are excited by this transaction, which we believe will assist build a healthy travel ecosystem in China”, said James Liang, chairman of the board and chief executive officer of Ctrip.

Meanwhile, the Deutsche X-trackers Harvest CSI300 China A-Shares ETF fell 2.5 per cent to US$36, despite the Shanghai Composite Index ending 0.5 per cent higher on Monday. Ctrip and Qunar will merged their operations to form a online traveling behemoth. “Ctrip and Qunar are likely to have 70-80 percent of the hotel and air ticket market”, Summit Research analyst Henry Guo wrote in a note to clients.

Baidu and Ctrip have also agreed to a business cooperation across a broad base of products and services. Ctrip.com’s CEO James Liang also believes that the deal will create greater customer value and strengthen the relationship between the companies’ management and shareholders.

It isn’t clear what changed since the summer offer from Ctrip.