Priceline is offering $40 a share for Kayak, a 29 percent premium to the company's closing price of $31.04 on Thursday. It expects to pay $500 million in cash and $1.3 billion in equity.
Kayak, which offers a website and mobile applications to help consumers compare prices for airlines, hotels and rental cars, went public in July with shares priced at $26. It operates like a search engine, letting consumers compare pricing along with other websites such as Priceline.com rivals Expedia Inc and Orbitz Worldwide Inc.
Dan Su, a Morningstar analyst, said there is concern that Priceline's rivals would likely not want to continue advertising on Kayak once the acquisition is completed.
Priceline, which is known for its name-your-own-price auction and has the largest market capitalization among online travel agencies, owes much of its success to international bookings on its popular European travel site Booking.com. But it has cited concern in recent months that weakness in Europe could slow growth.
"This certainly represents an investment for them in the paid-search, or the advertising channel, which is not an area where they've historically had a lot of exposure," said Daniel Kurnos, an analyst with Benchmark Co.
He said Orbitz stood to be affected by the deal, as Kayak is a significant driver of its traffic.
Kayak shares jumped 27 percent to more than $39 in extended trading, while Priceline.com fell about 1.7 percent to $617 from its Nasdaq close of $627.87.
Jeffery Boyd, Priceline.com President and Chief Executive, told analysts during a conference call that Kayak, which gets more than 100 million user queries each month, had built a leading position in mobile applications.
"We are excited at the prospect of Kayak building a global brand in travel planning, which we believe holds a significant financial opportunity for the group," Boyd said.
Kayak will be operated independently under the leadership of its current management, which includes company cofounders Steve Hafner and Paul English, Priceline said.
The deal is expected to close late in the first quarter of 2013.
Kayak reported third quarter results after markets closed on Thursday. It had net income of nearly $8 million, or 19 cents a diluted share, up 14 percent from $7 million, or 18 cents a share, a year earlier. Revenue rose about 29 percent to $78.6 million.
(Reporting by Karen Jacobs in Atlanta and Tej Sapru in Bangalore; Editing by Maju Samuel,; Peter Galloway and Andre Grenon)