Google Inc., owner of the world’s most popular search engine, is close to an agreement to acquire daily coupon company Groupon Inc. for about $6 billion, according to two people with knowledge of the negotiations.
The deal may be clinched as early as this week, said the people, who declined to be identified because the talks haven’t been made public. The purchase price would include payments to Groupon executives if the acquisition meets certain performance targets, one of the people said.
Google would use the purchase to benefit from surging demand for coupons, sent via the Web, that offer discounts on everything from dinner cruises to dental exams. Groupon’s strategy is easy to copy, fueling concern that Google wouldn’t be able to wring a high enough return on its most expensive acquisition, said Colin Gillis, an analyst at BGC Partners.
“If you overpay for anything, it will be a controversial buy,” said Gillis, who has a “hold” rating on Google and does not own its shares. “Groupon’s business is subject to mimicry.”
At the price being discussed, Google would be paying almost twice the $3.2 billion it paid for online advertising provider DoubleClick Inc. Technology blog AllThingsDigital reported yesterday that Google has offered $5.3 billion, plus $700 million in so-called earnouts, payments that reward Groupon executives for meeting certain goals.
A final agreement hasn’t been reached and talks could still break down, one of the people said. Aaron Zamost, a spokesman for Google, declined to comment. Julie Mossler, a spokeswoman for Groupon, didn’t immediately respond to requests for comment.
Google Chief Executive Officer Eric Schmidt aims to move the company into new areas, such as display ads and mobile marketing messages, to spur growth and keep from losing business as Facebook Inc., the largest social-networking service, adds features and lures Web surfers.
Schmidt is doing that partly through acquisitions, including the $700 million purchase of travel data aggregator ITA Software Inc., announced this year. Google has spent $1.6 billion on more than 20 companies in the first nine months of the year, according to regulatory filings.
Chicago-based Groupon, founded two years ago, sends daily messages to users in 300 markets, offering discounts on products and services. Groupon keeps a 50 percent cut of every deal sold, while businesses benefit from a rise in new customers. Deals, known as groupons, activate when a certain number is sold, encouraging users to recommend offers to friends.
Google, based in Mountain View, California, fell $19.98, or 3.4 percent, to $562.14 at 1 p.m. New York time in Nasdaq Stock Market trading. It had dropped 6.1 percent this year before today.
Since May, Groupon has doubled the number of markets it serves. Sales may top $500 million this year, two people familiar with the matter have said. Groupon would reach that milestone faster than Google and Amazon.com Inc. did.
Groupon had a valuation of about $1.3 billion in April, after Digital Sky Technologies led a group that invested in the company. It had raised a total of $170 million from investors, including Facebook backer Accel Partners and New Enterprise Associates.
Groupon has been hiring about 150 people a month, mostly in sales to enlist local businesses, which provide its more than 400 daily deals, President Rob Solomon said in an interview this month.
Local advertising through media including newspapers, direct mail, radio and the Internet will reach $133 billion in the U.S. this year, according to BIA/Kelsey, a consulting firm.
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