Travel Weekly Digital Edition

S&P CUTS DEBT RATING TO JUNK STATUS

Expedia’s stock repurchase could cost as much as $3.5 billion

By Dennis Schaal

Expedia Inc. plans to repurchase 42% of its common stock, or about 116.7 million shares, at $27.50 to $30 per share, a transaction that could cost the company about $3.5 billion.

The company’s stock price soared 15% two days after the announcement.

Still, Standard & Poor’s said it was cutting Expedia’s debt rating to junk status, apparently fearing the deal would be funded by a huge increase in debt. Moody’s Investors Service added that it likely would do the same.

But Barry Diller, Expedia Inc.’s chairman, senior executive and controlling stockholder, was upbeat.

“With this action, we couldn’t be clearer that the management and the board of this company are confident in the value of Expedia and in its long-term future,” Diller said.

In that regard, management will not be offering any of its own shares for sale.

But the debt-rating services took a dim view of the increased leverage.

“This represents a dramatic change in Expedia’s previously investment-grade financial policy,” Standard & Poor’s stated. “Upon completion, the tender offer will

increase debt leverage, reduce liquidity and curtail discretionary cash flow.”

The tender offer, in the form of a “ modified Dutch auction,” is expected to begin June 25 and expire around Aug. 6, four days after Expedia announces its second-quarter

earnings. Stockholders can indicate how many shares of common stock they seek to sell and at what price within the $27.50 to $30 range. Expedia then determines the lowest price at which the company can buy the shares.

Expedia’s tender offer
may make the company
a less attractive
acquisition target for
a private equity firm.
The Hertz Green Collection
will contribute $1 million to the

Diller’s voting control of the company will increase.

The company didn’t immediately specify how it would raise the cash for the transaction, but further details about the tender offer were expected this week.

At the end of the first quarter of 2007, Expedia had $638 million in cash and long-term debt of $500 million. One analyst, who declined to be identified, said Wall Street believed that Expedia was underleveraged and that its capital structure, with more cash than debt, was inefficient.

Many other public companies have much more debt than cash, and “Expedia is adding value to the company by taking advantage of an underleveraged balance sheet,” the analyst said.

At the same time, Expedia’s tender offer may make it a less attractive acquisition target for a private equity firm. That’s because Expedia is performing the kind of debt transactions that private equity firms like to sweep in and do.

“With the buyback, Expedia has taken some of its capacity to borrow and ability to create value off the table because they are doing it themselves rather than letting someone else do it,” the analyst said.

With the tender offer, Expedia’s net leverage could increase from about 4. 5 times earnings before interest, taxes, depreciation and amortization, or EBITDA, to around 4.9 times EBITDA, according to the analyst’s projections.

With dramatically fewer shares outstanding, the company’s earnings per share also could rise significantly.

National Park Foundation.

Hertz is committed to saving the environment. That’s why for every Hertz Green Collection rental you book for your clients, Hertz will contribute $1to the National Park Foundation, with a minimum guarantee of $1 million donated over the next year. With the Hertz Green Collection, your clients can drive economically and do something good for the environment at the same time. And we’re proud of our involvement in helping to make the world a greener place.

Reserve the exact make and model of any of the vehicles your clients want from the Hertz Green Collection. The car you reserve is the car they’ll get. Like the Ford Fusion, Toyota Camry, Buick LaCrosse, Hyundai Sonata, the Subaru Outback and now the Toyota Prius. There are nearly 35,000 cars in the line and all have an EPA highway fuel efficiency rating of 28 miles or more per gallon. And most cars carry EPA’s Smart Way certification*. And as thanks to you for helping your clients do something good for the environment, Exactly Rewards members will earn $5 for every Green Collection rental picked up and completed before 9/30/07. To reserve a Green Collection vehicle for your clients, simply book through your GDS system, visit hertzagent.com or call 1-800-654-3131. Doing more for you and the environment. It’s another reason why We’re Hertz. They’re Not.

FOR YOUR INFORMATION: *Indicates lower emissions of air pollutants and greenhouse gases. Green Collection vehicles have a minimum 28 MPG EPA Highway Rating based on the 2007 Fuel Economy Guide published on fueleconomy.gov. Actual mileage may vary. Advance reservations are required. Standard rental conditions and return restrictions must be met. Minimum rental age is 21; age differential charges and other exceptions may apply. Contribution to the National Park Foundation based on reserved and paid Hertz Green Collection rentals picked up at participating locations in the U.S. from June 14, 2007, through June 13, 2008.