Tencent offered eLong $18 per American depository share, which represented a 24.1 percent premium over Friday’s closing price. If the deal goes through, an increased investment in eLong will not only give Tencent a bigger stake in China’s rapidly growing travel industry, but help it build its online-to-offline (O2O) offerings, an important growth segment.
Tencent’s bid is also another sign of potential consolidation in China’s online travel industry. Another shareholder in eLong is competitor Ctrip, which is currently China’s top OTA with 23 percent market share. Ctrip acquired its shares in May when Expedia, previously eLong’s majority shareholder, sold its 62 percent stake to Ctrip, Keystone Lodging Holdings, Plateno Group and Luxuriant Holdings. At the time of the transaction, Ctrip said it paid $400 million for a 38 percent share.
Ticketing and travel booking is a key segment for O2O, which Chinese tech giants Baidu, Alibaba and Tencent (frequently referred to by the acronym BAT), all hope to take leading positions in. Astudy conducted last year by Tencent found that 57 percent of Chinese Internet users had made travel bookings online, with 23 percent reporting that they frequently use websites and mobile apps to reserve hotel rooms and air tickets.
Tencent’s other travel investments include ticket booking and group deals site 17u.cn and Woqu.com, which lets tourists customize itineraries for trips to the U.S.
Demand for OTAs and other online travel services is rapidly increasing as Chinese consumers spend more money on domestic and overseas trips. The China National Tourism Administration reported that the country’s tourism revenue increased 14 percent to 2.95 trillion RMB (about US$480.88 billion) in 2013 from the previous year. Outbound travel from China to other countries rose 18 percent to 98.2 million tourists, while domestic travel grew 10 percent to 3.26 billion tourists.
The Boston Consulting Group, meanwhile, says that by 2030, Chinese tourists will take 1.7 billion trips per year, almost double the 500 million trips taken in 2012.
The large number of OTAs and travel sites means that consolidation — either through acquisitions by one of China’s leading Internet players or mergers with competitors — is almost inevitable, but some companies are trying to maintain their independence for the time being.
For example, Qunar, a Baidu-backed online travel bookings platform, disclosed in June that it had turned down an acquisition offer from Ctrip. At the same time, Qunar announced it had received $500 million in new funding led by Silver Lake. It added in a statement, however, that it “remain[s] open to engaging in further discussions with Ctrip as well as other strategic players in the sector.”