Google is poised to make its biggest ever acquisition, with a bid of up to $6bn (£3.85bn) expected for local advertising website Groupon.
The two companies are believed to be negotiating a price somewhere between $5bn (£3.2bn) and $6bn – far ahead of the $3.1bn Google paid for DoubleClick.com and eclipsing the $1.65bn handed over for YouTube.
Rumours the search giant was ready to make a bid for Groupon were stoked by a cryptic exchange of Twitter messages between executives from the two firms.
Groupon chief executive Andrew Mason tweeted “today was the day-long equivalent of a very good week,” with Google’s head of M&A replying “I know what you mean… maybe... congrats”.
There is constant speculation about Google’s acquisition interests as it has a cash war chest of about $33bn and does not pay a dividend to its shareholders.
Groupon is a privately held, Chicago-based company which was launched about two years ago.
Yahoo offered in the region of $3bn for Groupon in failed acquisition talks earlier this year.
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.
Both Google and Groupon declined to comment yesterday.
Q.WHAT IS GROUPON?
A.As the name – a mixture of “group” and “coupon” – suggests, the website offers money-off coupons to groups of customers.
Q.HOW DOES THE GROUPON SITE WORK?
A.Retailers offer discounts – often very large ones – but with a hitch: a certain number of people have to agree to buy the product at the special price within a limited time period. If the required number don’t sign up, nobody gets to buy the cut-price product. All sorts of firms can use the site, although there are limits, for example on sellers of pornography.
Q.HOW DOES GROUPON MAKE MONEY?
A.Groupon takes a 50 per cent cut of all sales made through the site.
Q.WHAT’S IN IT FOR THE RETAILER?
A.First and foremost exposure. But it also gets a certain degree of protection, because a pre-set quota of customers have to buy before it agrees to sell. That means it can offset lower prices with higher volume.