Groupon Aims to Emulate Facebook, Not Yahoo, After Walking Away From Deal

Groupon Inc., which rejected a Google Inc. takeover last week, is betting it can keep increasing its valuation after walking away from a deep-pocketed suitor, something Facebook Inc. pulled off and Yahoo! Inc. failed to do.

Groupon, the Chicago-based provider of online coupons, spurned an offer of as much as $6 billion that included performance incentives, a person familiar with the matter said last week. The startup will decide next year whether to go the route of an initial public offering instead, the person said.

Internet executives have had mixed results in refusing billion-dollar takeover offers. Yahoo co-founder Jerry Yang was head of the Web-portal company when Microsoft Corp. tried to buy it for $47.5 billion in 2008. After rejecting the deal, Yahoo saw its valuation cut in half and Yang was replaced as CEO. At Facebook, founder Mark Zuckerberg turned down a $1 billion offer from Yahoo in 2006. Less than five years later, the social- networking service is valued at more than 40 times that.

“It is very common for all executives -- entrepreneurs or executives of public companies, to drink their own Kool-Aid and believe their own hype,” said Lou Kerner, a social-media analyst at Wedbush Securities Inc. in New York. “When everything is going up and to the right, it’s hard to have appreciation for the risks that are apparent in any business.”

Strategic Differences

Groupon Chief Executive Officer Andrew Mason, who started the company in 2008, had concerns about the strategic direction it would take under new management and what could happen to his employees if he sold to Google, according to a person familiar with the matter, who declined to be identified because the discussions were private.

Groupon has attracted 35 million users in more than 300 global markets by offering discounts of as much as 90 percent on everything from massages to ski tickets. The company makes money by keeping part of the revenue raised by the coupons. Groupon’s sales may top $500 million this year, two people familiar with the matter have said.

When Facebook declined Yahoo’s offer, Zuckerberg’s site had fewer than 12 million users. It now boasts more than 500 million. The Palo Alto, California-based company is worth more than $43 billion, according to SharesPost Inc., which tracks privately held businesses.

Yahoo, by contrast, has gone in the other direction. Even under a turnaround effort by Carol Bartz, the Sunnyvale, California-based company has struggled to revive growth and keep users from defecting to Google and social-networking sites. Its market value is now $21.3 billion.

Apple and Sun

Apple Inc., the world’s most valuable technology company, had its own near-miss takeover. The company held merger talks with Sun Microsystems Inc. in the 1990s, before CEO Steve Jobs returned to Apple and revamped its product line.

Twitter Inc., the microblogging site that lets users send messages of 140 characters, was in talks to be acquired by Google in 2009, the technology blog TechCrunch reported at the time. Twitter had recently raised funding valuing it at $250 million. The company is now considering a new investment round that would put its worth at more than $3 billion, according to three people familiar with the matter.

Other technology startups have opted not to sell in the past year, turning instead to outside investors. Small-business review site Yelp Inc. declined a $500 million offer from Google and took an investment of $100 million from private-equity firm Elevation Partners LP.

Foursquare Offer

Foursquare Labs Inc. turned down a $100 million bid from Yahoo, according to the All Things Digital blog. Instead, it raised $20 million in June from investors led by Andreessen Horowitz LLC.

In contrast, MySpace and Bebo, two of Facebook’s rivals in the social-networking market, both sold out to larger companies -- earning big paydays before their value declined.

News Corp. bought MySpace as part of its $580 million acquisition of Intermix in 2005. It later had to write down the value of the investment amid an exodus of users to Facebook. AOL Inc. bought Bebo for $850 million in 2008, and then sold it for less than $10 million this year.

“Life is all about timing and it’s hard to pick the perfect point to sell,” Kerner said. “Sometimes it’s better to sell too early than too late.”

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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