Ctrip.com International Ltd, an online travel service provider, plans to invest $88 million to acquire a 90 percent stake in a travel service unit of Wing On Travel (Holdings) Limited of Hong Kong, the company said in a statement yesterday.
Ctrip hopes to strengthen its market position in Hong Kong through the acquisition of the tourism unit of Wing On, which has been offering travel-related services for more than 40 years.
The investment by the NASDAQ-listed company will be subject to several factors, including approval from the shareholders of Wing On Travel.
With more than 17 million tourists from the mainland traveling to Hong Kong every year, the city has become a key tourist destination.
"Ctrip will try to expand business in Hong Kong and the Asian tourism market, with the support of Wing On Travel's mature business operations," Fan Min, CEO of the Shanghai-based company, said in a teleconference yesterday.
Even though the business scale of Wing On Travel's tourism department is small compared with Ctrip's, the company's Chief Financial Officer Sun Jie said she believes that the deal will improve their bottom line.
The acquisition is expected to boost Ctrip's profits by 5 percent annually.
If the deal moves forward, the acquisition will be completed within four to six months.
According to Ctrip's newly released 2009 financial statement, total revenues were from three major segments, hotel bookings, airline tickets and travel-related services.
Last year, airline ticketing reported 25 percent year-on-year growth, accounting for $140 million in revenue, while hotel bookings reported 35 percent year-on-year growth, accounting for $130 million in revenue.
Tourism revenue was up 62 percent year-on-year, becoming the fastest-rising revenue stream for Ctrip.
"Since Ctrip's tourism business has grown at a staggering rate, acquisition of Wing On unit will definitely contribute to the development of their tourism department in the future. That's also one of the major reasons for Ctrip to acquire the travel agency," Ma Xing, Ctrip's public relation's manager, told China Daily.
Kevin Zhang, market analyst at Thomson Reuters said: "With more and more airlines providing hotel and airline booking services - which previously accounted for the majority of Ctrip's revenues - Ctrip has to develop other business segments to maintain its dominance in China's travel industry. That's may be another reason for the acquisition."