UPDATE 2-Digital Generation explores sale, shares rise

Mon Jul 16, 2012 6:43pm EDT

By Chandni Doulatramani

July 16 (Reuters) - Advertising distribution company Digital Generation Inc (DG) said it is reviewing strategic options, including a sale, a month after rebuffing a takeover bid by rival Extreme Reach Inc.

DG's shares rose 25 percent to $12.00 in after-market trading. They closed at $9.61 on Monday on the Nasdaq.

The company said it is reviewing the feasibility and relative merits of various financial strategies, which may also include partnerships.

DG, formerly known as DG FastChannel, rejected Extreme Reach's bid of more than $20 per share, or $550 million, Reuters reported last month citing a source familiar with the matter.

The company might be open to taking itself private, said Christopher Ferris, an analyst at Noble Financial Capital Markets.

Ferris, who has a "buy" rating and a $19 price target on the stock, said DG may want to build its combined digital advertising delivery platform away from the public space.

The analyst, who reckons DG is unlikely to reconsider a proposal from Extreme Reach, said Google Inc and Yahoo! Inc may be potential suitors.

A private takeover, however, is more likely as a deal with Google would have anti-trust concerns, while Yahoo has just named a new CEO, Ferris said.

Reuters first reported on March 25 that DG had hired Goldman Sachs Group to find a buyer and has drawn interest from several private equity firms and rival companies, citing a separate source familiar with the matter.

The company enables the electronic delivery of advertisements, syndicated programs, and video news releases to broadcasters, online publishers and other media outlets.

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