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Online travel booking company Priceline.com (PCLN - Analyst Report) recently expanded its existing commercial partnership with Ctrip.com International, Ltd. (CTRP - Snapshot Report), the leading Chinese online travel agent in a bid to broaden their international partnership.

Priceline will make an investment of $500 million in Ctrip through a convertible bond for which Ctrip will allow Priceline to purchase its shares in the open market over the coming twelve months. As a result, Priceline’s total stake in Ctrip may go up to 10%. It will also give Priceline the right to appoint an observer to represent it in the Ctrip board of directors.

Priceline and Ctrip had a commercial agreement since 2012. The expansion of the agreement increases cross-selling opportunities for both companies.

The benefit to Priceline is two-fold. On the one hand, it gets to acquire an interest in Ctrip and thereby share in its fortunes. On the other hand, it gains access to Ctrip’s inventory, which can now be offered to any Priceline customers. It also stands to generate additional revenue from Ctrip customers when they buy Priceline inventory or other services (rent-a-car.com, OpenTable, etc).

Moreover, it further enhances cross-promotion between the two travel companies and provides customers access to a broader array of hotel inventory and other travel services.

Ctrip.com International, Ltd., founded in 1999, is China’s leading travel website. It provides accommodation reservation, transportation ticketing, packaged tours, and corporate travel management in China.

We believe that it is important for Priceline to further expand internationally, especially since its competitors like Orbitz Worldwide (OWW - Snapshot Report) and Expedia (EXPE - Analyst Report) have been focusing on expanding their global reach. Therefore the strategic alliance will help Priceline to fight the increasing competition in the online travel industry.

Priceline currently has a Zacks Rank #3 (Hold)

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