The Deal Is On

Groupon leaps 23% on rumor of Google bid. Who doesn’t like a deal?

December 8, 2012
December 8, 2012

Groupon rose 23% on Friday because sure, why not.

The beleaguered coupon firm didn’t make any news, and market chatter about a hedge fund’s 10% stake turned out to be weeks old. Groupon’s own press office said it was mystified by the rally. By day’s end, Bloomberg proffered the most credible explanation: a rumor spreading across trading desks that Google is taking another look at acquiring the company.

Could it be? Groupon famously spurned a $6 billion offer from Google in 2010 before deciding to go public at a valuation of $13 billion. Here’s the tale as documented in Frank Sennett’s book Groupon’s Biggest Deal Ever:

[CEO Andrew] Mason and [chairman Eric] Lefkofsky holed up in a Groupon conference room and talked the proposed deal through one last time. They now believed their company was worth well more than $6 billion, but it was difficult to say precisely how much more—unless they chose to believe leaks from New York investment bankers who pegged Groupon’s valuation at anywhere from $20 billion to $30 billion.

That overheated speculation emerged as competition between Morgan Stanley and Goldman Sachsfor lead underwriter status became so intense that Goldman CEO Lloyd Blankfein scheduled a visit to Groupon headquarters for two weeks into the new year so that Blankfein, one of banking’s true masters of the universe, could pitch Mason and Lefkofsky in person.

Ultimately, they concluded the company had so much growth potential, and they were so passionate about the business model, that the only move left was to call Google on Dec. 3 and kill the deal—a deal that likely would have been done if only the search giant had been able to guarantee a close.

“Emerging from that process, it felt like a butterfly emerging from the cocoon,” Mason said. “We went through a period of introspection and self-doubt, and then ultimately emerged in a state of supreme confidence. Like, OK, we’re the best company in the world.”

Now, Groupon is worth just $3 billion and generally considered the most embarrassing tech IPO of the past few years. Most recently, Groupon missed its own revenue forecast amid speculation that the board would oust Mason, the company’s enigmatic CEO. “Our stock is down 80%,” he said last month. “It would be more noteworthy if the board wasn’t discussing it.”

Google, meanwhile, moved on from its failed negotiations, made three smaller acquisitions in the coupon space, and launched its own copycat service last year called Google Offers, which isn’t thought to be much of a success.

So it’s certainly plausible that Google would consider reviving its bid at a Groupon-like 50% discount, but that would still be Google’s second- or third-largest acquisition ever. (It bought Motorola for $12.5 billion, DoubleClick for $3.1 billion, and YouTube for $1.7 billion.) Google just shook up the leadership of its M&A group; making such a pricey offer for Groupon would be an unusual start for the new guard.

It’s not even clear what Google would be getting for its money. Groupon has an enormous email list, which would be the envy of any company—except Google. And Groupon’s global salesforce, its strategic advantage against daily-deal clones, similarly overlaps with Google, which has long sold ads to small businesses. More optimistically, Google’s ubiquity could help Groupon reduce its ballooning marketing expenses, which have been weighing on profits. Google would also acquire some valuable tax losses in any deal with Groupon, though hardly enough to justify the deal alone.

If Google were to acquire Groupon, it would mostly be buying revenge. Who doesn’t enjoy purchasing something for half of what it would have cost earlier? The deal is on!  But Google would be wise to follow the lead of so many Groupon users and pass it up.

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