Bazaarvoice Inc, which helps companies run online consumer reviews, said its purchase of PowerReviews Inc would not reduce competition, after the U.S. Justice Department sued the company to try to force it to sell some assets.
Shares of the company fell 12 percent to a life-low in Friday morning trade, after losing 17 percent of their value on Thursday.
The department challenged the acquisition and said on Thursday it sought to prevent one firm from dominating the product rating and review platforms market, prompting BMO Capital Markets to cut its rating on the company's stock.
Lazard Capital said the lawsuit will be an overhang on the stock and legal expenses could increase operating expenses. The brokerage maintained its "neutral" rating on the stock.
The firms help companies use social media to advertise and also try to control any damage to clients' reputations from bad reviews. PowerReviews helped online retailers set up customer review sections on their websites so that they could compete with Amazon.com.
The acquisition has allowed Bazaarvoice to extend its network reach, syndicate more content to its customers, and gain a presence at the low end of the market with the PowerReviews Express product, Lazard said.
"We provided the DOJ with extensive documents, data, and information demonstrating that our acquisition of PowerReviews was procompetitive and did not result in a lessening of competition," Bazaarvoice said in a statement.
"We disagree with the DOJ's decision to ignore that evidence and we will now shift our attention to a court of law where we expect to be fully vindicated.
Bazaarvoice's 700 clients include Panasonic Corp, Burpee, Timex, Infiniti and Macy's Inc, according to its website.
BMO Capital Markets downgraded the company's stock to "market perform" from "outperform."
"After the departure of the CEO, a billings growth deceleration, the admission of sales execution issues, and now the announcement of a DOJ antitrust suit ... our confidence in a recovery over the next 12 months is now too low to support a bullish call on the stock," BMO analyst Karl Keirstead said.
Bazaarvoice made a splash when it debuted on the Nasdaq in February 2012, opening at $16, but its shares have lost more than half their value since, excluding Friday's losses.
The stock fell to $6.62 on the Nasdaq in Friday morning trading.
(Reporting by Sayantani Ghosh in Bangalore; Editing by Saumyadeb Chakrabarty)