Shares of Expedia Inc. (EXPE) shot up more than 13% this morning as the online travel agency announced that it plans to split into two companies, with its TripAdvisor business becoming a separate business.
Expedia said it either spin off TripAdvisor unit to stockholders or would reclassify its stock. The proposed spin-off, if approved, is expected to be completed in the third quarter of 2011.
Shares of Expedia surged in pre-market trading, opening at $25.42 from $22.40 previous close. But the credit-ratings agency Standard & Poor’s warned that it might downgrade Expedia’s’s ratings over plans to split off its TripAdvisor unit into a publicly traded company.”The transaction could raise Expedia’s adjusted debt leverage to mid-2x, assuming all existing debt remains in place at Expedia,” Andy Liu, a credit analyst with S&P, said in a statement. “We believe it will reduce Expedia’s growth rate, EBITDA margin, and discretionary cash flow generation going forward.” Expedia has more than $1.63 billion in debt vs $1.2 billion in total cash.
Expedia said it will continue to operate the rest of the business, including its flagship online travel site, Hotels.com, Hotwire, and other travel services sites.
The company’s statement announcing the split also said that Expedia’s dual-class equity capital structure and the governance arrangements between Barry Diller and Liberty Media will be mirrored at TripAdvisor following the transaction.
Shares of Expedia are currently up 11.61% to $25.00 on above average volume. Approximately 27 million shares have traded hands today vs. average 30-day volume of 7.2 million shares.