* Deal would be Google's biggest to date
* Shows willingness to employ growing cash reserves
* Google shares slide
(Rewrites lead; adds analyst comments, background)
By Alexei Oreskovic
SAN FRANCISCO, Nov 30 Google Inc (GOOG.O) is
reportedly closing in on a deal to buy online discount-coupon
sensation Groupon for up to $6 billion in its largest-ever
acquisition, signaling a willingness to use some of its huge
cash hoard to buy growth.
A deal, reported by several media, including the New York
Times on Tuesday, would give Google an important window into a
fast-growing $91 billion local advertising market.
But Google's shares fell 4.5 percent, partly on concern it
may shell out too much for a business likely to face increasing
competition. Reports of the deal came as the European Union
announced plans to investigate Google's search practices.
"Investors think that might be overpaying," Kaufman
Brothers analyst Mayuresh Masurekar said of the reported $5
"There are no barriers to entry," he said of Groupon.
"There is nothing unique to what they're doing, so there is a
risk that Google overpays for Groupon at this point."
But he added that buying Groupon could help Google make
further inroads into a local advertising market that analytics
firm Borrell Associates estimates will be worth $91.1 billion
Groupon sends its members daily e-mails with about 200
discounts for goods and services. The deals are activated only
when a minimum number of people agree to make a purchase,
giving Groupon clout to negotiate steep group discounts on
products and services.
Wedbush Securities analyst Lou Kerner said the daily deals
service dovetails with Google's search advertising business,
with both focused on helping merchants acquire customers.
"Google is building a mosaic of marketing solutions for
businesses," said Kerner. "So having this kind of flash sale
side of the business, which will all be automated, just makes a
ton of sense."
A Google spokesman said the company does not comment on
rumor or speculation. A spokeswoman for Groupon declined
A WEB PHENOM
Groupon -- called the fastest-growing Internet start-up in
history -- does not disclose financial figures, although
analysts estimates for the two-year old company's annual
revenue run rate range from $400 million to $600 million.
The company founded by music graduate Andrew Mason, who
lives in Chicago with his girlfriend and 20 cats, has been on a
tear. Its subscriber base is expected to grow to 25 million in
2011 from 13 million this year.
Its backers include Digital Sky Technologies, which is also
invested in Facebook.
"It's been one of the fastest growing companies in history
and that growth is going to be accelerated being part of the
Google platform," Kerner said.
The New York Times reported the companies were negotiating
a price between $5 billion and $6 billion. All Things Digital
said they were talking about a price "well above" the $2
billion to $3 billion Yahoo Inc (YHOO.O) offered in failed
acquisition talks earlier this year.
The New York Times said the deal could happen as early as
this week, but both reports said the talks between Google and
Groupon might still fall apart.
The deal would easily rank as the largest in Google's
12-year history. Its two biggest to date are the $3.1 billion
purchase of online advertising firm DoubleClick in 2008 and the
$1.65 billion acquisition of video site YouTube in 2006.
There is constant speculation about Google's acquisition
interests as it has a cash war chest of about $33 billion and
does not pay a dividend or regularly repurchase its shares.
"This is perhaps a good time for them to make bigger
acquisitions than we have seen in the past," said Caris &
Company analyst Sandeep Aagarwal.
The reports of the Google-Groupon talks come as Google's
dominant position in the Internet search market and its
expansion plans have led to increased regulatory scrutiny, with
the European Union announcing a formal investigation into the
company's search practices on Tuesday. [ID:nLDE6AT13Q]
"It's an area that Google is not in now. If you define it
as a separate market, it's not going to be an issue," said
Richard Brosnick, an antitrust expert with the law firm Butzel
Long. "The idea of buying your way into a market is not a basis
to reject a transaction."
(For a Breakingviews column on the probe and the reported
Groupon talks, see [ID:nN30274527])
Google's planned $700 million purchase of online travel
software company ITA Software, currently being reviewed by U.S.
regulators, is opposed by several prominent travel industry
companies, including Expedia Inc (EXPE.O) and Sabre Holdings
Google shares finished Tuesday's regular session down 4.5
percent, or $26.40, at $555.71.
(Reporting by Alexei Oreskovic and Jim Finkle; additional
reporting by Alexandria Sage in San Francisco and Sakthi Prasad
in Bangalore; editing by Derek Caney, John Wallace and Andre