Priceline.com, the popular online travel service, agreed Thursday to acquire Kayak Software Corp. for $1.8 billion, a deal that would boost Priceline's customer base as it wrestles with a sluggish economy and newer, more nimble rivals.
Under the terms of the deal, Priceline will pay $500 million in cash and $1.3 billion in stock for Kayak, a comparison travel website. The sale values Kayak at $40 a share, a 26% premium to its closing price of $31.04 on Thursday and 57% higher than its July initial public offering price of $26.
Shares of Kayak jumped 27% to $39.30 in after-hours trading Thursday, while Priceline shares fell slightly.
"We are delighted for Kayak to join our group," Priceline Chief Executive Jeffrey Boyd said on a conference call with investors Thursday. "Our approach to this is consistent with our approach to earlier acquisitions."
Kayak will operate as a separate website and keep its current management. The deal, pending approval from regulators, will close in early 2013.
Priceline, born during the dot-com boom, has acquired several online travel companies as the economy slowed and competition increased. Its competitors include start-ups like Hipmunk as well as Google Inc., which recently acquired travel firm ITA Software.
Kayak's search engine lets users compare prices on hotels, flights and rental cars from hundreds of websites, including Priceline competitors such as Orbitz and Expedia.com. It also sells advertising.
Now that they're family, Norwalk, Conn.-based Priceline will pick up some "cross-pollination of knowledge" from Kayak, Boyd said. That includes Kayak's success using mobile applications, which is growing its user base. Kayak, based in Concord, Mass., processes more than 100 million searches a month.
Kayak hopes to use Priceline's customer base and established presence in Europe through earlier acquisition Booking.com, Boyd said. Kayak executives recently announced an expansion into Russia, and the company has acquired travel search companies in Germany and Austria.
In its third-quarter earnings report released Thursday, Kayak recorded an $8-million profit, an increase of 14% from a year earlier.
Kayak shares closed down 50 cents, or 1.6%, before the deal was announced. Priceline shares closed down $6.74, or 1.1%, at $627.87.