Expedia Group, the online travel aggregator is navigating murky waters after the corona-virus outbreak demolished the entire travel, tourism and entertainment sectors. In March, the company withdrew it’s full year forecast due to the downturn in the industry.
Expedia was on the back foot even before the travel bans and the corona outbreak begun due to stiff competition from the kinds of Airbnb and Booking.com. In December, the board ousted CEO Mark Okerstrom and CFO Alan Pickerill citing underperformance followed by elimination of 3000 jobs shortly after. Board Chairman Barry Diller had stepped in since to oversee daily operations.
The board appointed Vice-chairman Peter Kern as the new CEO and Eric Hart as new CFO on Thursday and announced cancellation of all dividends till the sectors rebounds.
Financials and Capital raising efforts
The company is now focused on severe cost cutting and focus on financial health. It aims to reduce costs by way of reduction of corporate overhead, fixed costs, capitalized expenditure and research and development expenses. The company also plans to spend less than $1 billion on marketing in 2020, compared to $5 billion spent last year.
Owing to internal issues and sector-wide meltdown, Expedia stock(NYSE:EXPE) is down 40% this year to $66.
On Thursday, the company announced plans to raise $3.2 billion dollars to stay afloat till demand returns to normal. The fundraising plan comprises of $1.2 billion dollars raised from Private Equity players and $2 billion raised from debt markets. The private stock placement was snapped up by Apollo Global Management and Silver Lake Partners.
The equity is non-voting and non-convertible perpetual preferred stock paying a 9.5% dividend. However, the deal also gives the investors warrants to purchase 4.2 million shares of common stock at $72, the warrants are valid for the next 10 years. Representatives of both investors showed great optimism to the media regarding their investment and stated their confidence in the rebound of the travel sector.
The second part of the fundraise is $2 billion in debt financing, akin to arch rival Airbnb that raised $1 billion each over 2 debt and equity rounds, also from Silver Lake, to weather the storm.
Ratings agency Moody’s have put a Baa3 rating on the debt, of which $1.145 billion is senior secured debt and $855 million is senior unsecured debt. Moody’s stated they expect substantial cash-flow and revenue declines in first half of 2020, with a slow recovery to follow. They also stated that they expect the revival of the sector in 2021, but project numbers to be below 2019 levels even then. They expect the stock to be positioned in the Baa3 rating till end 2021.