Overnight, an event happened that might finally change the balance of power to some degree. Chinese powerhouse Tencent (which we just spoke about in the past week) took a 16% stake in eLong.
- Tencent has acquired approximately 16% of the outstanding shares for a total purchase price of $84.4 million and become the second largest shareholder of eLong. Expedia has acquired approximately 8% of the outstanding shares for $41.2 million and now holds 56% of the outstanding shares.
- The strategic investment in eLong represents the first significant investment in the travel market by Tencent. eLong and Tencent plan to deepen their cooperation in future, including forming a business partnership to develop online travel products and distribute eLong's hotel supply to Tencent's online community with 674 million(1) QQ user accounts in China.
Another potential winner is Expedia (EXPE) which has a near 60% stake (after buying 8% more) in eLong. Much like Yahoo (YHOO) is being valued more for its Chinese holdings than its American business, Expedia could be viewed the same if Tencent takes eLong to the next level.
The obvious potential loser here is Ctrip but it's been the dominant horse for such a long time, it should set up quite a battle in the space. Near term the reaction today in CTRP is probably overdone as it will take time for eLong to benefit from this new relationship.