<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
SCHEDULE TO
(RULE 14d-100)
TENDER OFFER STATEMENT UNDER SECTION
14(d)(1) OR 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
TravelNow.com, Inc.
(Name of Subject Company (Issuer))
WONSUB, INC. (OFFEROR)
HOTEL RESERVATIONS NETWORK, INC. (OFFEROR PARENT)
(Name of Filing Persons (identifying status as offeror,
issuer or other person))
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
89490A 10 7
(CUSIP Number for Class of Securities)
----------
GREGORY S. PORTER, ESQ.
HOTEL RESERVATIONS NETWORKS, INC.
8140 WALNUT HILL LANE, SUITE 800
DALLAS, TX 75231
TELEPHONE: (972) 361-7311
(Name, address and telephone number of person
authorized to receive notice and
communications on behalf of filing persons)
----------
COPIES TO:
JEFFREY CHAPMAN, ESQ.
VINSON & ELKINS L.L.P.
2001 ROSS AVENUE
SUITE 3700
DALLAS, TX 75201
TELEPHONE: (214) 220-7797
BRIAN M. LIDJI
SAYLES, LIDJI & WERBNER
1201 ELM STREET
44000 RENAISSANCE TOWER
DALLAS, TEXAS 75270
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
TRANSACTION VALUATION* AMOUNT OF FILING FEE*
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<S> <C>
$ $
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*N/A
[__] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: None.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
[X] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
Check the appropriate boxes below to designate any transactions to which the
statement relates:
[X] third-party tender offer subject to Rule 14d-1.
[ ] issuer tender offer subject to Rule 13e-4.
[ ] going-private transaction subject to Rule 13e-3.
[ ] amendment to Schedule 13D under Rule 13d-2.
Check the following box if the filing is a final amendment reporting the results
of the tender offer: [__]
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<PAGE> 2
HOTEL RESERVATIONS NETWORK
ACQUISITION OF TravelNow
JANUARY 4, 2001
The following is the transcript of the Hotel Reservations Network telephone
conference call held on January 4, 2001.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to
the Hotel Reservations Network Conference call. At this time,
all participants are in a listen only mode. Later we will
conduct a question and answer session. At that time if you
have a question you will need to press the one followed by
the four on your telephone. As a reminder today's conference
is being recorded Thursday, January 4th, 2001. I would now
like to turn the conference over to Mr. Mel Robinson. Please
go ahead sir.
Mel Robinson: Good afternoon everyone and welcome to our conference call
today. With me from Hotel Reservations Network, are Dave
Litman, our Chairman and Chief Executive Officer, Bob Diener,
our President, and Greg Porter, our General Counsel. We're
also very pleased to have with us on the call, Jeff Watson,
the Chief Executive Officer and Co-founder of TravelNow. The
purpose of today's call is to provide a fuller picture of the
merger transaction between HRN and TravelNow that was
announced in our joint press release this morning. We'll make
some opening remarks, and we'll then open up the call to
questions. As we begin, I do need to inform you that this
conference call may contain forward looking statements that
are subject to risks and uncertainties that could cause
actual results to differ. Please refer to our IPO
prospectus for a list of those risks and uncertainties that
could impact actual results. Also nothing in this conference
call should be considered an offer to purchase nor a
solicitation of an offer to sell securities of TravelNow.com.
The tender offer will be made pursuant to a tender offer
statement and related materials to be filed with the SEC.
Now, I would like to turn the call over to Bob Diener. Bob.
Bob Diener: Thanks Mel. Let me begin be saying that it has been part of
our publicly stated strategy to use the strength of HRN's
balance sheet for strategic acquisitions that will further
enhance the growth potential of HRN. Since going public in
February of last year, we've been presented with a large
number of acquisition opportunities in the travel space. We
have actively evaluated several of these opportunities. In
the earlier part of last year, however, we did not find
valuations to be particularly attractive from an acquisition
perspective. We have repeatedly said that HRN would not
undertake acquisitions that did not hold the promise of being
quickly accretive to HRN's cash earnings per share, even if
they were otherwise a good strategic fit. With the sea change
in valuations that occurred in the second half of 2000, we
began to look more closely at some of these opportunities. In
late November, when TravelNow.com announced its decision to
explore its own strategic alternatives, we swung into high
gear over the holidays, resulting in today's announcement. I
will say, at the outset, that HRN expects this to be
accretive to HRN's cash earnings per share in 2001, which Mel
will discuss in more detail later. I'd now like to turn it
over to Mel to recap the terms of the deal. Mel.
Mel Robinson: Thanks Bob. Again the total value of the acquisition is $47.4
million, which includes essentially four separate parts. One
a cash tender offer at $4.16 per share for all the
approximately 9.9 million outstanding shares of
TravelNow.com, common stock, which includes certain shares
that are reserved for issuance, but
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HRN Conference Call
January 4, 2001
Page 2
that are not yet presently outstanding. The second part, a
buyout of approximately $560,000 vested in the money stock
options held predominantly by TravelNow.com employees. The
third part, buyouts of certain executive employment
agreements. And fourth $3.24 million in cash that was
recently committed by HRN to purchase 1,080,000 common shares
in two transactions that are separate from this announced
transaction today. We do expect to begin the tender offer on
or before January 18th. We expect that the final closing of
the merger will take place in the later part of the first
quarter of 2001. The boards of both company's have
unanimously approved the merger agreement and the board of
TravelNow.com has recommended that all of their shareholders
tender their shares into the tender offer. As a result of the
merger, TravelNow.com will become a wholly owned subsidiary
of Hotel Reservations Network, and its current management
team will continue to operate the business intact. In a
moment Bob will review the strategic rationale for the deal.
But first Dave Litman, and Jeff Watson will comment on the
historical relationship between our two companies. Dave.
Dave Litman: Thank you Mel. TravelNow represents a major distribution
opportunity for Hotel Reservations Network, bringing over
12,000 affiliates in addition to the 4,000 already at HRN. So
this represents a major distribution opportunity for both
companies across the Internet. We're excited to bring the two
largest and most successful travel affiliate networks on the
web together. This gives us the opportunity to give
unprecedented distribution to the products and services of
both companies. The two companies have worked closely
together for a number of years. We at HRN have admired the
similarly aggressive business culture and the focus on growth
and cost control of TravelNow. This helps speed the ease and
the nature of the transaction because we know and trust one
another. TravelNow is one of HRN's largest affiliates and
runs a similar business using an affiliate model to affect
distribution. The combined entity, again, will have over
16,000 affiliates. In 2000, TravelNow sold over $100 million
in hotel reservations, and over a million hotel room nights,
using mostly an agency model versus HRN's merchant model.
TravelNow grew at over 100 percent in 2000, and we hope to
continue TravelNow's growth and expansion, and focus the
company on helping distribute HRN's highly profitable and
successful hotel products, and incorporating TravelNow
products through HRN's distribution networks. I'll now
introduce Jeff Watson, CEO of TravelNow.
Jeff Watson: Thank you Dave. TravelNow started in 1995, and began
operations primarily as a hotel reservation service. While we
currently offer airlines and car rental reservations, hotels
still account for 70 percent of our revenue. Our company was
not founded by venture capital and we began the operations
through operating results and revenue and that's how we built
our business. In 1996 we introduced our affiliate model, and
began to grow our company that way as opposed to spending
large money on advertising campaigns. At present, as Dave
said, we do have 12,000 affiliates and we are in a position
where we are turning our corner and getting back to our roots
of operating the business within the operating constraints. I
would like to reiterate that our board of directors has
unanimously approved the merger of the two companies, and we
have recommended that all of our shareholders tender their
shares into the offer. I would now like to hand it back to
Bob Diener, who will recap the benefits of the merger from
HRN's perspective.
B. Diener: Thanks Jeff. This deal has all the characteristics HRN has
been looking for in an acquisition. First we expect it to
increase the growth opportunities for revenues
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HRN Conference Call
January 4, 2001
Page 3
and earnings at HRN, and to do the same for TravelNow.com.
Second, we expect the deal to be accretive to HRN's cash
earnings per share for 2001. Third, far and away the single
most important strategic reason for the deal, from HRN's
perspective, is that it represents a quantum leap in Internet
distribution for Hotel Reservations Network. HRN currently
has over 4,000 web affiliates, while TravelNow.com has over
12,000 affiliates of its own. Since there is not much overlap
between our two affiliate networks, both HRN and
TravelNow.com will have the opportunity to reach millions of
additional customers, who visit the affiliate web site of the
other company.
Some specific synergies we believe exist include the
following. Although HRN is technically the supplier of
discount hotel rooms to TravelNow by virtue of the fact they
are an affiliate of ours, most of the hotel rooms that they
sell, nearly 95 percent in fact, are hotels accessed through
several GDS systems. Thus our merger will provide the
opportunity for better preferencing of HRN hotel products
across the entire TravelNow affiliate network. Second, 100
percent of TravelNow's reservations are booked electronically
over the web, since its original business model is a pure
Internet model. While they have a call center in Springfield,
Missouri, it is used exclusively for customer service, and
generally not for sales. By contrast, HRN takes both
electronic hotel bookings over the web, and through our call
centers in Texas. We can easily add 800 numbers to
TravelNow's web site and generate incremental hotel bookings
in our call centers, with little or no additional
infrastructure investment. Third there is certain cost
efficiencies that we have already identified to date,
including such things as, one, eliminating TravelNow's direct
cost of being a separate public company, which is well into
the hundreds of thousands of dollars. Second, reductions in
long distance tele-communications rates, and many others. It
is our intention to retain the current personnel at
TravelNow, and to help their team grow even faster and much
more profitably by being part of HRN. There are several other
synergy's that we have already identified and quantified, but
I would reiterate that the overwhelming rationale for this
deal, from our point of view, is the huge strategic leap in
Internet distribution that it provides. We believe that the
acquisition is compelling and are delighted to welcome
TravelNow to the fold. Mel will now touch briefly on
financial issues, before we open the call to questions. Mel.
M. Robinson: Just a few comments on financial matters. With respect to
additional guidance from HRN for 2001, at this moment, we are
not planning to offer additional guidance. However as the
tender offer is in the completion stages and the merger is
close at hand, we do expect to provide additional guidance to
the investment community for the combination of the two
companies. Again, though, I would reiterate as Bob has said,
we do expect the deal to be accretive to 2001 cash earnings
for Hotel Reservations Network, but probably on a GAAP
earnings per share basis, after amortization of goodwill,
there may be some dilution on a GAAP EPS basis. Third, the
revenue impact to HRN, based on the TravelNow merger, will be
modest, in that TravelNow uses the agency model for the vast
majority of its business. Whether that's hotel, air, car, or
others, consequently they recognize commission revenue rather
than the gross amount of the sale that HRN uses because of
our merchant model. And last I would simply point out, as the
press release indicated that even after the closing of the
tender offer and the merger, HRN will still have at least
$130 million in cash and investments, and no debt. Bob, if
you could just wrap up for us.
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HRN Conference Call
January 4, 2001
Page 4
B. Diener: In closing, we look forward to working with Jeff and the
TravelNow team, and making two good companies even better. We
now would be happy to take any of your questions.
Operator: Ladies and gentlemen, if you have a question please press the
one followed by the four on your telephone. You will hear a
three toned prompt acknowledging your request. If your
question has been answered and you wish to withdraw your
polling request, you may do so by pressing the one followed
by the three. If you are using a speaker phone, please pick
up your handset before entering your request. One moment
please for the first question. Mitch Rubin from Baron Capital
please go ahead.
Mitch Rubin: Hi guys, two questions I think related, but, Jeff it would be
helpful, maybe, to give some overview of how your business
worked and what the commission rates are and whether and how
they're different from-- I assume you guys were competitors
at some point in signing hotels up, so what overlap there is
in just the hotel portfolio of available rooms. And what
differences there might be in the deals that you had with the
hotels. Was HRN higher or lower, sort of mark up versus
commission or whatever? And then from a P&L perspective, Mel,
maybe address the rationale for leaving one on an agency and
one on a merchant basis, and is that an opportunity maybe to
move them all to one and make a bit more money? Thanks.
M. Robinson: OK, Jeff, if I could just grab that and I'll ask you to add
some color. The business model of TravelNow, which Jeff can
clearly elaborate on, does provide that the hotel sales that
they generate are coming, as we said, approximately 95
percent on a commission basis through GDS provided hotel
inventory. A relatively small percentage of their business is
HRN contract inventory that is being sold across their
affiliate network. Consequently, well we can't get into the
specifics about the commission rates, the hotels commission
rates as well as the airline and rental car commission rates
that TravelNow operates within, would be considered
essentially standard within the agency world, and the travel
industry--
M. Rubin: So just for a second, so they didn't necessarily have direct
relationship with hotels in various cities. It was just
pulling stuff off Pegasus or somebody else and repackaging
it?
M. Robinson: Jeff, you want to handle that one?
J. Watson: That's correct, we pull inventory from a multiple GDS
environment. We work with several suppliers of hotels. So we
are a little different in terms of how we have our
relationships with hotels.
M. Rubin: OK.
M. Robinson: So this essentially represents, from the combined company's
point of view, Mitch, an opportunity to increase the
percentage of HRN negotiated rate merchant hotel inventory
that is offered for sale across the TravelNow affiliated
network. In effect, increasing the revenues and profits on
the HRN side while also facilitating growth on the TravelNow
side of the ledger. With respect to the accounting issue
specifically, as you know there is a fair amount of clear
literature on the whole issue of revenue recognition at gross
versus net, and some very specific criteria that must be met
to record one way or the other. We have studied this issue
carefully
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HRN Conference Call
January 4, 2001
Page 5
over all of 2000, and are quite comfortable with the way HRN
records its revenues at gross. And we're also quite
comfortable to the extent that TravelNow continues to
generate a sizable amount of its business on an agency basis,
that it must continue to recognize that revenue on a net
basis. But again to the extent that HRN's sales under its own
hotel contracts increase to TravelNow, or should I say
through TravelNow, we would expect to increase the gross
hotel revenues of the HRN entity as well.
M. Rubin: OK, so essentially your gross margin probably winds up
expanding because (a) they book a higher gross margin, and
(b) it's mostly gross profit to as oppose to high cost of
goods stuff? Is that fair?
M. Robinson: I think that's correct.
D. Litman: Yes, and also Mitch, this is Dave Litman. How you doing? This
represents a substantial opportunity to grow HRN's merchant
model as well using the huge distribution platform that
TravelNow has. Remember TravelNow has 12,000 affiliates
across the web, mostly not overlapping with HRN. So, we have
the opportunity to introduce our product across the web and
to preference our product even more. Also by using the
TravelNow network, we have the opportunity to identify new
hotels and new cities and new markets, absolutely that are
selling, and convert those over to a merchant model as well.
M. Rubin: OK, and within that, is that a difficult integration to
achieve, if right now they're sort of pulling GDS and then
offering rooms to then make that almost a predominantly HRN
thing? Is there a--
D. Litman: The answer to that is this is a merger of allies. We've been
working together now for a number of years and we understand
their systems fairly well. And their systems are very
sophisticated and complex and are able to preference hotels,
show different kinds of rates, pull rates from different GDS
and non-GDS systems like HRN. So the opportunity to
preference HRN hotels is strong.
M. Rubin: OK. Great. Thanks guys.
Operator: Jim Winchester from Lazard, please go ahead.
Elia Segin: Yes. Hi. This is actually Elia Segin. Two quick questions.
You mentioned that there is little overlap between the
affiliate programs. Can you talk more about the profile of
TravelNow's affiliates, and also what is the goodwill on the
acquisition?
M. Robinson: I'll handle the second question first Elia. It'll be in the
vicinity of $44 million. The profile of the affiliates, and
Jeff, you may want to elaborate on this as well, the profile
of the affiliates of the two companies is fairly similar in
that we both have travel related and non-travel related
Internet affiliates in our respective networks. And the
travel related-- I used that definition broadly. That would
include travel e-commerce companies as well as travel
information, city sites, convention and visitors bureaus,
things of that nature. Jeff, do you want to add anything with
respect to TravelNow's affiliate composition?
J. Watson: Yeah, I will add a little bit. I do think that the makeup is
similar, however we do also offer a few other products in
terms of car, and air that sometimes changes that profile a
bit. We've identified similar prospects, and we have the
non-overlap due
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HRN Conference Call
January 4, 2001
Page 6
to the fact that there is still a large pool of potential
affiliates that together we believe that we can go obtain.
D. Litman: That's a very good point. This is Dave Litman. The broader
distribution of the TravelNow product allows them to obtain
affiliates that HRN may not for the reason that some
affiliates want a broader distribution of product. So by
offering the HRN product within the TravelNow service, again,
we're able to increase the amount of HRN hotels sold.
B. Diener: It's Bob Diener. Let me jump in as well. HRN's key to
profitability has been our affiliate model because we have
been able to keep our advertising and marketing costs very
low, and typically in the 2 to 4 percent range of revenues.
We've done that through contracting with affiliates where we
don't pay them any fee up front to receive placement and
promotions on their site, but we only pay them based on
production. TravelNow's had a very similar model and has been
very aggressive, and has an excellent team of people that
work on affiliates and aggressively go out and recruit them.
They're bringing on this very large network of 12,000 greatly
expands our affiliate network and enables us to take our
model, to move it forward very fast and add our products
throughout these 12,000 affiliates.
D. Litman: Right. And as Bob mentioned during the call, this is Dave
Litman again, that the opportunity to expand the phone
service to a currently pure Internet distribution play is
also important in that it will introduce customers who are
not comfortable putting their reservation over the Internet,
and want the comfort of a human voice to help guide them in
making their travel selection. So we think that's a
significant opportunity as well.
M. Robinson: And Elia, if I could just put that into some financial terms,
most people who are familiar with HRN know that while
approximately 55 percent of our total hotel bookings are done
as electronic bookings direct from customer to server, still,
45 percent of our total sales are conducted somehow in our
call center. Much of that business does come from simply
having 800 numbers available on the website, which as Dave
says, encourages people to call who might otherwise not want
to part with a credit card number on the web. So there is a
very high proportion of our own existing business, which we
now have 10 years of experience in dealing with that is a
telephone sales opportunity. And this represents a huge
incremental upside for the TravelNow side.
E. Segin: What percentage of TravelNow's sales come from the affiliate
program?
J. Watson: About 83 percent. This is Jeff Watson. 83 percent.
E. Segin: And the balance would be on the TravelNow.com site.
J Watson: Right. They're directly on our sites.
M. Robinson: OK. And I think Jim had one follow-up question.
J. Winchester: Yeah, hi Mel. It's Jim Winchester. Two quick questions. As I
understand, TravelNow is basically pulling inventory of
GDS's. Does the potential swing of some of that activity
through HRN direct, does that mean that you can essentially
avoid paying the GDS booking fee? That's question number one.
And the other question, since we've got Dave and Bob on the
line, it would be helpful for me to
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HRN Conference Call
January 4, 2001
Page 7
understand a little bit better. How do you think your major
affiliates are going to perceive this transaction? Do you
think there's any risk that a large affiliate that's an
existing affiliate member of HRN could potentially view the
acquisition of TravelNow as an acquisition of an competitor
to them? And do you think there's any risk of in any way
alienating any part of your existing affiliate base?
M. Robinson: Jim, excuse me. If I could handle the first one first.
TravelNow does not currently pay GDS booking fees. Those are
actually paid by the hotels that participate in the GDS
systems. So it's more a question of maximizing the
opportunity to increase gross margins for the combined
companies because of preferencing HRN hotel rooms as opposed
to pure cost avoidance from processing fees.
J. Winchester: Gotcha.
D. Litman: With regard to the second question, this is Dave Litman. On
affiliates, we think that TravelNow, having a large focus on
hotels, most of their revenue, a large majority of their
revenue is from hotels. It will be perceived as a hotel
distribution play, pure and simple. And the major goal and
the major opportunity, as Bob has emphasized, is the
affiliate distribution network to sell more HRN hotels under
the merchant model. That's a substantial opportunity and
that's the focus of the acquisition. Other parts of the
acquisition such as car rentals and other types of travel
distributions are relatively minor, but are an added bonus to
HRN.
M. Robinson: And Jim, I would just add to that. As HRN has stated many,
many times, the online hotel distribution industry is at a
much earlier stage of development clearly than air and also
rental cars, and from HRN's perspective represents much lower
hanging fruit rather than becoming more of a department store
of leisure travel distribution.
J. Winchester: Gotcha. So as we look over the next couple of years, we
should expect revenue that had been booked to TravelNow under
the agency model could in fact be converted into business
through the merchant model and therein lies the benefit
really in maximizing margin.
M. Robinson: I would agree with much of that, Jim. I think however, the
rapid increase that TravelNow has been able to accomplish to
date on it's own and the size of it's affiliate network and
it's current momentum, fueled with the merger with HRN ought
to enable them to continue to grow the GDS portion of the
business. We shouldn't view it just as a replacement of GDS
inventory with HRN inventory, although that will take place
to an extent. But it does give them a broader product
offering and again, because of the relative infancy of online
hotel distribution, we would expect that both segments would
grow, although no doubt the HRN inventory should grow at a
somewhat faster rate.
D. Litman: This is Dave Litman. Those of us who know us well, know that
we focus where the money is. And the money is in the merchant
hotel model for us. That's our bread and butter. That's our
core business and that's where we intend to focus TravelNow.
J. Winchester: Now, what's the amortization period on that goodwill?
M. Robinson: We believe it will be five years.
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HRN Conference Call
January 4, 2001
Page 8
J. Winchester: Five years for the $44 million?
M. Robinson: Yeah.
J. Winchester: OK, thanks.
Operator: Tom Underwood from Legg Mason, please go ahead with your
questions or comments.
Tom Underwood: Guys, you've mentioned moving or expanding a distribution of
HRN's inventory through TravelNow's affiliates. Are there any
plans to expand some of TravelNow's offerings through HRN's
affiliate base?
M. Robinson: Certainly. There's opportunities in some of their
distribution platforms and products, particularly the car
rental product, which is a natural for HRN to expand that
through the HRN network. But there are other opportunities as
well. So we do intend to look carefully at both sides of the
equation, and we're very familiar with TravelNow's products
and offerings.
T. Underwood: Great. Thanks.
Operator: If there are any additional questions, please press the one,
followed by the four at this time. Rob Ammann from Founders
Asset Management, please go ahead.
Rob Ammann: Yeah, can you talk about any technical challenges or anything
like that that might-- that you have to overcome to really
give the HRN rooms preferential, I don't know what to call
it, pull up within the TravelNow affiliate network to kind of
pull that inventory first and get it kind of facing the
customer? And when would you expect that integration to take
place?
M. Robinson: Jeff and Dave, why don't you guys handle that one.
D. Litman: Yeah, Jeff can talk to that a lot in terms of the technical
aspects. But this is Dave Litman. Let me mention that
TravelNow is very sophisticated technology. And they have the
ability to pull hotel rates from different systems and
different types of systems as well. GDS systems and non-GDS
systems, they pull through different switches and so forth.
So they have the opportunity, and already have the technology
to do preferencing, to pull rates from certain hotels, to
exclude and include certain types of properties under the
distribution selection model. So Jeff, perhaps you can speak
more on that issue. But we're fairly confident this can
happen quickly.
J. Watson: I think that really sums it up, Dave. Our technology is
actually already complete. We're doing that currently. So we
believe that we'll be able to continue to do it, and at an
accelerated pace as HRN guides us in the markets that their
in now.
T. Underwood: It's Tom. Just to follow up on that. Is HRN's affiliation
right now with TravelNow. I'm assuming when I go look for a
room with an affiliate partner of TravelNow, and do a search,
it's going to sort it by price if I put in a particular
region. And if HRN's already out there, would they just kind
of appear within that ranking of price, currently? And why
would that change now if, change that relationship?
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HRN Conference Call
January 4, 2001
Page 9
M. Robinson: Yeah, Jeff? Do you want to talk about how you define search
parameters and sorting parameters?
J. Watson: Well, it's different depending upon the type of affiliate,
first of all. We offer a very flexible range of searches that
affiliates can choose from. Primarily though, people are able
to search geographically, by price, alphabetically if they
choose. Then they're able to pull a particular property and
see the various rates. In some instances we pull, if a hotel
has inventory that is HRN inventory, they also have GDS
inventory, we pull all inventory available for the hotel and
display that to the customer. We maximize our revenue based
upon what TravelNow currently receives. The economics of that
could change.
T. Underwood: I see. Thank you.
Operator: Erica Moffett from CIBC World Markets, please go ahead.
Paul Kiam: Hey, this is actually Paul Kiam. I have a question. You guys
mentioned a million room nights, $100 million in gross
bookings. What period is that over?
M. Robinson: It's over a period I believe of one year. It's 2000.
P. Kiam: So it's a 2000 pro forma number.
D. Litman: That's correct. A tentative 2000 number. I think the number
actually exceeds that.
P. Kiam: And then, from my understanding of TravelNow, it would be
projected to possibly break even sometime in the first half
of 2001. As a stand alone business, what kind of cash flow
does that business generate before taking into account these
synergies and opportunities that you've outlined in the call?
D. Litman: Well I think already that TravelNow is, Jeff can speak to
this cash flowing positive, and I think the opportunity to
grow with HRN enhances that possibility.
M. Robinson: Paul, I don't believe there is-- and Jeff, correct me here if
there is. I don't believe there is public guidance for
TravelNow's numbers for '01 separately. I think we can say
however, that TravelNow as a standalone company anticipates
generating certainly a black number for EBITA for the full
year, and that does not contemplate any access to the types
of synergies that we've been discussing.
P. Kiam: OK. Aside from the revenue opportunities, what kind of
expense run rate then are we looking at in TravelNow? Where
are those..sort of below the line of synergies can we find?
M. Robinson: Again, we discussed a few of those. Obviously with any
company in the distribution business personnel costs are the
largest area, as Bob indicated earlier. This is not a slash
and burn approach from HRN's perspective at all. We have a
great respect for and confidence in the management and staff
at TravelNow, and we would simply hope to give them
additional tools to grow faster and more profitably. There
are other opportunities for obvious savings. Again,
TravelNow, while it has a revenue base in the single millions
of dollars, has all the attendant costs of being a public
company, which are a very high percentage of its revenues.
That simply goes away when this deal ends. We do have some
clearly identified
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HRN Conference Call
January 4, 2001
Page 10
contract cost savings, where we have similar goods and
services that are being purchased. One specifically being in
the telecom area. There are a number of accounting issues,
not really issues, there are a number of other non-cash
expenses that TravelNow has been amortizing, particularly
stock based compensation, predominantly for their employees
and some service providers. That essentially goes away when
we have a clean start at the opening balance sheet. There
will be a smaller non-cash charge from an operating
standpoint. Although clearly there will be a very large
goodwill amortization number on the combined basis.
P. Kiam: Would it be fair to say a low millions type number? Single
digit low million number, less than five million?
M. Robinson: For? I'm sorry number for?
P. Kiam: For the cost savings?
M. Robinson: Cost savings. I would say if you looked at actual cash cost
savings and savings and non-cash amortization, clearly in
seven figures. And again that would be in addition to the
projected profit .
P. Kiam: Got it. Then the last question, the whole cost center
opportunity that you highlighted, just give me a benchmark of
the 8 or 10 percent of so that you use fulfillment over the
phone, what percent of that is actually sourced from the
Internet? Is that a number you can probably give at HRN?
D. Litman: The number is that 90 percent of our overall sales are
sourced from the Internet.
P. Kiam: So 90 percent of those calls done on your call center are
sourced with the Internet, you say.
D. Litman: No, 90 percent of overall sales at HRN are sourced from the
Internet. The metric we've released is at least 55 percent of
those are done purely on line, and the balance are done
partially or wholly through the call center. In other words,
someone sees us on the Internet and calls in. We don't know
exactly what the opportunities with TravelNow are, cause the
customer base is different, but we think the opportunity is
substantial given our experience in this area.
M. Robinson: So again, to put this into hard numbers Paul, using a 90
percent number, actually we've disclosed that it's recently
been as high as 93 percent of HRN's business being sourced
from the web. If you subtract essentially 55 percent of that
being direct electronic bookings, you can see that there's a
very high ratio between direct web bookings, and web sourced
bookings that are going through the call center. We believe
that is a good statistical benchmark for which to gage the
opportunity on the TravelNow side.
P. Kiam: OK, thanks a lot.
Operator: Michael Emerald from Longfellow Investments, please go ahead.
Michael Emerald: Why is the tender going to begin as late as the 18th? And is
it open for 20 business days?
M. Robinson: Greg, do you want to handle that one?
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HRN Conference Call
January 4, 2001
Page 11
G. Porter: Sure, our agreement with TravelNow requires us to commence
the tender offer no later than January 18th. We expect to
begin the tender offer as soon as we can prepare documents to
file with the SEC, which we'll do as promptly as we can. And
yes the tender offer will be open for 20 business days.
M. Emerald: Does that mean I might expect to see it maybe within a week?
G. Porter: We will file them as soon as we can prepare them and send
them to the SEC.
M. Emerald: OK, thank you.
Operator: Mitch Rubin with Baron Capital, please go ahead with your
follow up question.
M. Rubin: Hey guys. So it seems that in Jeff's business he makes four
or five bucks per room night, while at HRN we make $40 per
room night. So if you sort of back into some of the numbers.
So I guess my question would be, how much of the business of
the million room nights are done over the TravelNow network,
overlap with places where HRN actually has hotels? In other
words, how much-- if you were to take the business they did
last year, how much of it is stuff HRN could have sold
through places where we actually had agreements with hotels?
That's question one, and question two is, is there any
difference in their reimbursement rate to their affiliate
network? And does that have to get meshed with ours as we put
them all together? Are they paying more or less to their
affiliates per booking then we are, and will that need some
cleaning up? Thanks.
D. Litman: With regard to the first question, Mitch, we're in a process
of studying that. And we think it's a very good opportunity.
Part of our analysis on the acquisition was this very
question. We're not releasing that metric separately but we
think it presents a substantial opportunity.
M. Rubin: Can you give a ball park? My thesis is right though, that
they're making three, four, five bucks a room of gross
profit, and we make $40 right? So we can--
D. Litman: We're not releasing that metric--
M. Robinson: We're not signing up to the actual numbers but the general
thinking we would not take issue with.
M. Rubin: OK, is there--
D. Litman: I think we agree that HRN merchant model is far more
profitable.
M. Rubin: Is there a ballpark as to, in other words, do they do 10
percent of their business in Vegas? Or do they do 20 percent
in other cities? Is there any color you can give?
D. Litman: We'll provide further guidance perhaps going forward. At this
time we're not going to do that. But we think it represents a
good opportunity for HRN, and we think we have an opportunity
to substantially increase that business as well. So with
regard to the second question, in terms of their
reimbursement rates, typically, and Jeff can comment on this,
their commission payments are based on collected revenues.
Under an agency model, typically a proportion of the
reservation commissions are not collected, and typically the
payment for the
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HRN Conference Call
January 4, 2001
Page 12
agency model comes a lot later than the merchant model. So
overall I would say that their commission rates are less than
those at HRN. Jeff do you have any comment on that?
J. Watson: I would say that's accurate Dave. I don't think that we can
comment at this time on any further discussion of what we
might do in that arena post merger.
D. Litman: Let's put it this way Mitch, we're pretty excited about it.
M. Rubin: Yeah, sounds good, thanks.
Operator: Gentlemen, please continue with your presentation or any
closing remarks.
M. Robinson: OK, if there are no further questions I would again like to
thank everyone, it's a pretty large crowd this morning, we
understand, for joining the call. And keep your eyes out, for
those of you that are TravelNow.com shareholders, keep your
eyes out for the tender offer documents. And we'll look
forward to getting this deal put to bed.
Operator: Ladies and gentlemen, that does conclude our conference for
today. You may all disconnect, and thank you for
participating.
***
This transcript contains "forward-looking statements" regarding HRN. HRN has
based these forward-looking statements on its current expectations and
projections about future events, based on the information currently available to
it. The forward-looking statements include among other things, statements
relating to HRN's anticipated financial performance, business prospects, new
developments, new strategies and similar matters. These forward-looking
statements are subject to risks, uncertainties and assumptions that may affect
the operations, performance, development and results of HRN's business and
include, but are not limited to, the risk factors described under the section
"Risk Factors" in HRN's prospectus filed with the SEC on February 25, 2000
(which is available upon request from HRN or on HRN's websites,
www.hoteldiscount.com and www.180096hotel.com, under the heading "Investor
Relations") and the following: 1) material adverse changes in the economic
conditions in HRN's markets; 2) future regulatory actions and conditions in
HRN's operating areas; 3) competition from others; 4) product demand and market
acceptance; 5) the ability to protect proprietary information and technology or
to obtain necessary licenses on commercially reasonable terms; and 6) the
ability to obtain and retain key executives and employees. HRN undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or any other reason. In light of
these risks, uncertainties and assumptions, the forward-looking statements
discussed in this press release may not prove correct.
Information in this transcript contains forward-looking statements regarding
TravelNow.com that involve risks and uncertainties that might adversely affect
the Company's operating results in the future to a material degree. Such risks
and uncertainties include, without limitation, the ability of the Company to
raise capital to finance the development of its software products, the
effectiveness and the marketability of its services, the ability of the Company
to protect its proprietary information, and the establishment of an efficient
corporate operating structure as the Company grows. These and other risks and
uncertainties are presented in detail in the Company's Form 10-KSB, which was
filed with Securities and Exchange Commission on October 12, 1999. This
information is available from the SEC or the Company.
This transcript is neither an offer to purchase nor a solicitation of an offer
to sell securities of TravelNow.com. The tender offer will be made pursuant to a
tender offer statement and related materials. Investors and security holders are
strongly advised to read both the tender offer statement and the
solicitation/recommendation statement regarding the tender offer referred to in
this news release when they become available because they will contain important
information. The tender offer statement will be filed by HRN with the Securities
and Exchange Commission (SEC), and a solicitation/recommendation statement will
be filed by TravelNow.com with the
