(Updates with closing share price in seventh paragraph.)
(Bloomberg) — Groupon Inc. is weighing whether to sell itself to Google Inc. or to proceed with a round of fundraising that may value the daily coupon company at more than $3 billion, said two people with knowledge of the matter.
Google and Groupon have held talks about an acquisition, said the people, who asked to remain anonymous because the discussions are private. Groupon management met this week and is leaning toward a sale, though the company may take until the end of the year to make a final decision, one of the people said.
Groupon, a Chicago-based startup, would give Google more of the $133 billion U.S. local advertising market and help it benefit from surging demand for coupons, sent via the Web, for products and services. Google Chief Executive Officer Eric Schmidt is stepping up the pace of acquisitions to spur growth and keep from losing business as Facebook Inc., the largest social networking service, adds features and lures Web surfers.
Groupon earlier held failed negotiations with Yahoo! Inc. and may not clinch a deal with Mountain View, California-based Google, the people said. Groupon may become Google's most expensive target. In 2008, the Web search leader paid $3.2 billion for DoubleClick Inc., an online advertising provider.
Julie Mossler, a spokeswoman for Groupon, didn't respond to a request for comment. Aaron Zamost, a spokesman for Google, and Dana Lengkeek, a Yahoo spokeswoman, declined to comment. Technology blog AllThingsDigital earlier today reported that Google is holding talks to buy Groupon.
Schmidt Goes Shopping
David Lawee, Google's mergers and acquisitions head, said in an interview this month that the company is likely to buy more companies about the size of YouTube and DoubleClick to help offer more online services. He didn't discuss potential targets. Google paid $1.65 billion for YouTube, a video site, in 2006.
Google fell $5.73, or 1 percent, to $590.83 at 4 p.m. New York time in Nasdaq Stock Market trading. It has dropped 4.7 percent this year.
Schmidt is using takeovers to lessen his company's reliance on ads placed alongside search results and move into new areas, such as display and mobile marketing messages.
Google has accelerated its dealmaking in 2010, spending $1.6 billion on more than 20 companies in the first nine months of the year, according to regulatory filings. Google also agreed to buy travel data aggregator ITA Software Inc. for about $700 million earlier this year.
An April investment in Groupon by a group led by Digital Sky Technologies gave the company a valuation of about $1.3 billion. Owners say the company is worth more now because it's growing faster than other new companies. Yahoo recently discussed an acquisition with Groupon before talks unraveled over price, according to people familiar with the matter.
Groupon sends daily messages to users in 300 markets in 29 countries, offering steep discounts on products and services ranging from cupcakes to yoga classes, dinner cruises to dental exams. Groupon keeps a 50 percent cut of every deal sold, while the business benefits from a rise in new customers. Deals, known as groupons, activate when a certain number is sold, encouraging users to recommend offers to friends.
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.
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.
The company could use financial backing to help it add on-the-ground salespeople to enlist the local businesses, including nail salons, restaurants and coffee shops, that provide its more than 400 daily deals. It's hiring about 150 people a month and about 80 percent of the total work in sales roles, Groupon President Rob Solomon said in an interview last week.
Lookalikes such as LivingSocial aim to capitalize on the growing popularity of daily deals and could become a threat to Groupon. The site has also become a victim of its own success, with some small companies becoming overwhelmed by the sudden surge in new business spawned by Groupon offers.
Groupon has raised a total of $170 million from investors, which include Facebook backer Accel Partners and New Enterprise Associates. Founded in November 2008, the Chicago-based company was profitable after about eight months, Chief Executive Officer Andrew Mason told Bloomberg TV in July.
With assistance from Joseph Galante, Brian Womack, and Ari Levy in San Francisco and Jeffrey McCracken in New York