March 12, 2008 / 12:22 AM / 11 years ago

Google gets DoubleClick, shareholders applaud

BRUSSELS/SAN FRANCISCO (Reuters) - Google Inc won approval on Tuesday from the European Commission of its planned acquisition of DoubleClick Inc and promptly closed the deal, sending its stock 6 percent higher.

A Google search page is seen through the spectacles of a computer user in Leicester, central England July 20, 2007. Google won unconditional approval from the European Commission on Tuesday to buy rival Web advertiser DoubleClick for $3.1 billion, despite objections from rivals and privacy advocates. REUTERS/Darren Staples

The move will allow the Web search and advertising leader to accelerate its move into the market for corporate banner and display ads, where it has little business, and fulfill an expansion plan that has been on hold for a year.

Separately, a New York federal judge capped possible damages media conglomerate Viacom Inc can seek in its $1 billion lawsuit alleging Google was negligent allowing pirated programs on its YouTube online video sharing service.

The raft of favorable news, coming on a buoyant day for U.S. stock markets when the Dow Jones index closed up 3.6 percent, countered a string of bad news that has had Wall Street debating whether Google’s rapid growth is slowing.

Google shares enjoyed a minor rally, gaining 6.3 percent to $440, as the stock began to reverse a sharp decline since the start of 2008, when it stood near $700.

Shares hit 17-month lows on Monday and remain off 36 percent so far this year after jumping 50 percent in 2007.

The Web search leader has been hampered in moves to expand into the market for corporate brand ads through its 2007 merger with DoubleClick and into the emerging video advertising market through its acquisition of YouTube in 2006.

“Google has kind of languished strategically over the past year,” Sanford C. Bernstein analyst Jeffrey Lindsay said. “The strategy for 2007 was really put on ice for quite some time.”

“It looks like Google is starting to make headway,” the Wall Street analyst said. “They are coming back on something of a roll — the wait-and-see period is coming to an end.”

The EU approval of the $3.1 billion DoubleClick deal came despite objections from rivals and privacy advocates and followed an in-depth investigation by European competition officials. The merger, announced a year ago, was given a go-ahead by U.S. antitrust authorities late last year.

Software giant Microsoft, Internet rival Yahoo and AT&T Inc, the largest U.S. telephone company, had pressed regulators to block the Google-DoubleClick deal, arguing it gave Google too much power in online ad markets.

Within hours of the European Commission’s approval of the DoubleClick deal, Google announced it had sealed the deal.

Google says it has been limited by law from making detailed integration plans with DoubleClick, but by early April it expects to have a plan to cut an unspecified number of jobs in DoubleClick’s U.S. operations and, potentially, overseas.

“As with most mergers, there may be reductions in headcount. We expect these to take place in the U.S. and possibly in other regions as well,” Google said in a statement.

DoubleClick has 1,500 employees. Google had 16,805 employees at the end of 2007.

LOOKING AHEAD AGAIN

On the legal front, U.S. District Judge Louis Stanton denied a Viacom request to add punitive damages to its suit against Google, saying common law damages cannot be recovered under the Copyright Act.

A Viacom representative said the company had no comment.

The European Commission, the European Union’s executive arm, said Google and DoubleClick operate in different parts of the online advertising world and their deal was not a marriage of rivals.

Google attracts nearly two-thirds of Web searches in the United States and dominates the European Web search market with a share upward of 80 percent, according to industry data.

That gives it an edge on the simple ads it sells, which appear on its search pages. DoubleClick deals with fancy display ads that it delivers to many kinds of Web sites.

But last month, a report by Web traffic researcher comScore Inc raised fears among investors that Google may be having trouble converting its search-market leadership into paid advertising, from which it derives 99 percent of its revenue.

Many analysts countered by saying Google management’s own moves to improve the effectiveness of ads by paring back the number it delivers on each Web page explain the decline.

Bernstein’s Lindsay says investors are now focused on whether comScore’s February data for Web search advertising, due out later this month, will show a continued slump or a rebound in the number of advertisements Web visitors viewed.

The Wall Street analyst believes the data will show improvements in Google ad viewership.

“That would confirm that Google has not been damaged by the economic downturn,” said Lindsay, who recommends investors buy Google shares because they will outperform the market. He said positive news at this juncture would lead him to change his rating to “strong buy” on the stock.

Additional reporting by Paritosh Bansal and Franklin Paul in New York; Editing by William Schomberg, Quentin Bryar, John Wallace, Gary Hill

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