UPDATE 3-Google to pay $3.1 bln for DoubleClick ad business

Fri Apr 13, 2007 9:45pm EDT

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(Adds details of private equity payout, Yahoo comment)

By Eric Auchard

SAN FRANCISCO, April 13 (Reuters) - Google Inc. (GOOG.O) said on Friday it would pay $3.1 billion for Web ad supplier DoubleClick Inc., its biggest acquisition, accelerating a push into the graphic ad market led by Yahoo Inc. (YHOO.O).

The juggernaut of Web search-based advertising beat out suitors Microsoft Corp. (MSFT.O) and Yahoo in the final stages, sources familiar with the negotiations said. Time Warner Inc.'s (TWX.N) AOL online unit had earlier considered a bid.

The agreed price represents a huge payday for San Francisco private equity firm Hellman & Friedman, DoubleClick's majority owner, which 21 months ago paid $335 million for the assets acquired by Google, a source familiar with the deals said.

The purchase propels Google deeper into the Web display ad market, which includes richer graphic and online banner ads for corporate brands, and represents half of all online marketing. Until now, this business has been dominated by rival Yahoo.

"This shores up Google as the absolute leader," said Forrester Research senior analyst Shar VanBoskirk. "This rounds out their capabilities in everything in the online space. There isn't anything they don't have."

New York-based DoubleClick would also fortify Google with ad-targeting and analysis capabilities as the company expands into print, radio, video, mobile and television ad markets.

"The DoubleClick platform touches so many of the existing Google customers," Google Chief Executive Eric Schmidt said on a conference call. "It accelerates our entry into some of these markets by several years."

The all-cash deal, coming just six months after Google paid $1.65 billion for video-sharing site YouTube, is due to close by year-end, once it has the necessary regulatory approvals.

DoubleClick was the leading independent player in the first generation of online advertising during the 1990s.

Private equity buyers paid roughly $1.1 billion for it in July 2005: $375 million for the technology business, $310 million for Abacus and $400 million of cash DoubleClick had on hand, the source said. JMI Management was a co-investor.

Abacus sells data to online marketers to help predict shoppers' behavior, and three months ago DoubleClick sold it along with part of its technology unit for $525 million to Alliance Data Systems Corp. (ADS.N). The private equity buyers saw a return of eight times their investment on the rest of the technology business, which cost $335 million, the source said.

Free of stock market scrutiny for the past year and a half, DoubleClick moved aggressively to shed assets and speed up the pace of product development and bought three small businesses.

HEFTY PRICE

Some analysts felt Google paid a steep price for DoubleClick, which RBC Capital Markets' Jordan Rohan said was strategic because it sits between advertisers and publishers.

"Google could not let this go to Microsoft and therefore paid what they needed to pay," Rohan said.

By contrast one of the top publicly traded online ad firms, aQuantive Inc. AQNT.O, has a market value of $2.2 billion.

The Wall Street Journal said last week Microsoft pulled back once the DoubleClick auction price topped $2 billion.

DoubleClick was the most successful firm to emerge from so-called Silicon Alley, the downtown Manhattan corridor that gave birth to dozens of mostly forgotten start-ups which sought to move the advertising industry of Madison Avenue online.

Founded in 1996, DoubleClick offers a digital marketplace that connects ad agencies, marketers and Web site publishers. It has more than 1,500 corporate clients.

Schmidt said Google had eyed up DoubleClick for years and that employees of Google and DoubleClick already collaborate. Highlighting their closeness, the companies share a block-long office building in New York's former meat-packing district.

One sticking point in the deal could be objections from antitrust regulators like the Federal Trade Commission, which have not yet had to look closely at the Internet ad market.

"I think someone at the FTC will have their hands full, because this is a new area," said CIBC analyst Paul Keung.

Schmidt brushed aside the concerns, saying "This is a very, very competitive market in terms of the number of choices."

Shares of Google, down $1.10 in regular session trading ahead of the news, fell another $2.30 to $463.99 in after-hours trade on the announcement. Yahoo rose 4 cents to $31.41.

The deal comes as Yahoo has made more headway into Google's core market. This week it signed a deal to supply search ads to media conglomerate Viacom VIA.N. Two months ago, it reached a deal with NBC Universal to expand an existing ad partnership with iVillage to cover all NBC Universal online properties.

"We are well positioned to deliver even more value to our advertisers and publishers," Yahoo spokeswoman Gaude Lydia Paez said.

(Additional reporting by Paul Thomasch, Kenneth Li and Robert MacMillan in New York)

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