Tuesday, December 21, 2004

Interactive Corp to spin off Expedia

It has happened, finally! Inteactive Corp (IACI) took some action to get people to respect its stock!

The market welcomed the spin-off by sending its shares around 6% higher. I have been buying Interactive shares as a value bet. Even after today's move, its revenue/cashflow is being ignored by the market.

The spin-off itself, Expedia, will be a good buy. Spin-offs tend to move lower during the first few weeks when the parent is part of an index. This is true due to the huge volume of money that tracks/flows into index funds these days. Index funds, by their very definition, cannot hold onto the shares of the spinoff, causing a temporary fall in the new shares. They recover within a few months as non-index funds pile on the undervalued shares after a while. There is also a chance that once an independent entity, the spinoff can end up on an index too, sending it a lot higher.

One person extemely glad about this announcement today must be Bill Miller. Interactive Corp forms a sizable part of his fund's holdings. The stars seem to be lining up for Miller to beat the S&P a 14th time, though it looked impossible just a few days ago that his streak would continue over to this year!

An additional thing to keep an eye on - Expedia can now focus on only the travel business and will be looking for more acquisitions. Will Priceline be the next target ? Ctrip, Lastminute are other possible targets.


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