Priceline's president Jeffery Boyd said Kayak offers world class technology and innovation.
The deal comes just months after Kayak launched its delayed public offering that raised US$91m.
Kayak allows people to compare hundreds of travel sites at once when searching for flights, hotels and rental cars and gives travellers choices on where to book.
It handles over 100m user queries each month through its global websites and mobile applications.
"Kayak has built a strong brand in online travel research and their track record of profitable growth demonstrates the company's popularity with consumers and value it offers to advertisers," said Boyd.
The company first announced its initial public offering in 2010 but delayed the offer because of weak economic conditions and concerns over Google's purchase of flight information company ITA Software, a move that threatened to hurt other travel sites.
Kayak Software Corporation was created in 2004 by Expedia, Travelocity and Orbitz. It allows consumers to compare hundreds of travel sites at once.
As part of the deal, Kayak's current management team will run operations independently of Priceline.
Priceline will pay US$500m in cash and US$1.3bn in equity and stock options.
Kayak, which went public in July at US$26 a share, will get up to US$40 a share under the agreement.
"Seeing a merger from a company which has only been public for a short time is unusual as normally it's new public companies which make acquisitions," said Jon Ogg at 24/7 Wall Street.
"Shareholders who bought shares in Kayak are now going to have a handsome profit from their investment," said Ogg
Priceline Group, which originated as a website allowing travellers to bid or negotiate prices, is now a travel operator, controlling various websites including booking.com, priceline.com, Agoda.com and Rentalcars.com. It operates in 180 countries.
Source: AFP via I-Net Bridge
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