Expedia share price soars on buyback plan

Online travel company Expedia Inc. said Tuesday that it would buy back more than a third of its shares for as much as $3.5 billion, paying a premium of at least 8% over the stock’s closing price Monday.

Expedia said it would repurchase 116.7 million shares at $27.50 to $30 each.

The news sent Expedia shares up $3.64, or 14%, to $29.14.

The price range that Expedia is willing to pay represents a premium of 8% to 18% over Monday’s closing price of $25.50 a share.

In a statement, Chairman Barry Diller said the move reflected the board’s confidence in the company’s future. The company didn’t say how it would pay for the buyback, but it would appear the firm would have to borrow some of the money. The company had $637.7 million of cash on its balance sheet March 31.

“I think they felt that the shares were very undervalued, and the company has very strong cash flows,” said Marianne Wolk, an analyst at Susquehanna International Group.

Before Tuesday, Expedia’s shares were up 22% this year, lagging behind travel website Priceline.com Inc.’s 47% gain.

The buyback plan led Standard & Poor’s to cut its rating on Expedia’s debt to non-investment grade, or “junk” status. Moody’s Investors Service, which gives Expedia its lowest non-junk rating, said it may also downgrade the debt.

In the market for derivatives known as credit default swaps, the cost to insure Expedia’s bonds against default soared to 1.83% of a bond’s face value, up from about 1.23%.

The buyback is to start next week and expire the week of Aug. 6. The tender offer would allow stockholders to indicate how many shares they wished to tender and at what price within the company’s range. The company will then determine the lowest price at which it can purchase the 116.7 million shares, which represent 38% of the total of the company’s Class A and Class B common stock outstanding.

Expedia directors, executive officers and Liberty Media Holding Corp. do not intend to sell shares in the repurchase plan, Expedia said. Liberty has a 15.7% stake and Diller holds 2%.