UBS Sees 'Concerns' For Orbitz, Downgrades To Sell

In a report published Tuesday, UBS analyst Eric J. Sheridan downgraded the rating on Orbitz Worldwide, Inc. OWW from Neutral to Sell, while reducing the price target from $12 to $10.

Analyst Eric Sheridan said that there were “increasing antitrust concerns” surrounding the proposed transaction between Orbitz and Expedia Inc EXPE. Checks suggested that there were “increasing levels of concern being voiced by travel suppliers to regulators regarding an already largely consolidated US OTA market.”

Sheridan pointed out that there were several transactions that had been recently “derailed by regulatory opposition,” while adding that “emerging competitive threats” from both Google Inc GOOGL GOOG and TripAdvisor Inc TRIP were “misunderstood by a subset of these concerned industry players.”

If the deal were to be blocked by the DOJ, Sheridan believes that Orbitz would continue to be “an attractive potential acquisition candidate, albeit at likely lower than the $12 Expedia offer.”

In the report UBS additional causes for caution as:

1. “Degree of execution drop-off since the February acquisition announcement, compounded by the Q1 EBITDA miss (driven by increased fraudulent transactions)
2. Approaching August 12th (initial outside date, slow period for regulators in DC), with the potential for timing to be pushed back as far as May 12th, 2016 (i.e., reduced time value)”