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It looks as if

Sabre Holdings

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will have to put more money on the table to convince's

( TVLY) holders to sell into its tender offer.

Sabre said Tuesday it would offer $23 a share to acquire the balance of Travelocity's common stock -- it already has a 70% stake -- representing a 19.8% premium over the closing price of $19.20 on Friday.

The stock reacted by shooting up $6.05, or 31.5%, to $25.25 in recent trading as the market anticipated more bidding. Sabre Holdings was falling $2.18, or 4.8%, to $43.10.

Capturing Spread

"The arbitragers are saying the price of the deal is going to increase," said Bailey Dalton, an analyst at C.E. Unterberg, Towbin. "Typically, the price of an offer does go up 15% to 20% in these situations." According to Dalton, Travelocity's top shareholders, across the board, believe the price is too low.

Other analysts agree: "I think $23 is too cheap," said Paul Keung, an analyst at CIBC World Markets. "My price target is $30. Something closer to that price would be more reasonable."

Sabre Holdings said it would make the tender offer on or soon after March 5. The travel holding company estimates that the proposed transaction would be neutral to its 2002 earnings.

Overall, the Sabre offer makes sense, analysts said. "They're looking at a highly profitable, majority-owned business, which they can fold back into their company at a higher growth rate," Dalton said.

Building Business

Sabre Holdings is trying to create a travel conglomerate, much like what

USA Networks

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"It's more effective to negotiate with suppliers across multiple distribution channels," Keung said.

Traveler's Check

In the last quarter, Travelocity lost market share to its main competitors, Expedia and


. On a GAAP basis, the company's loss before income taxes and the Sabre interest narrowed to $25 million, or 50 cents a share, in the fourth quarter from $26.2 million, or 53 cents a share, a year earlier.

As of Friday, Travelocity's stock was down 35% since the beginning of July, while Expedia was up 21%.

Sabre's loss grew to $69.7 million, or 52 cents per share, in the fourth quarter, from $29.4 million, or 23 cents per share, a year earlier. The stock is down 43% since the beginning of July.

"Travelocity is of inherent value to Sabre," said Dalton. "It will help expand the stock's multiple." The offer is not part of a strategic or operational change for the business, however.

Travelocity has formed a special committee to make recommendations to its board.