SAN FRANCISCO (Reuters) - Google Inc is close to a deal to buy online coupon service Groupon Inc in what could be the Internet giant's biggest acquisition to date, two media reports said on Tuesday, citing unnamed sources.
The New York Times reported that the companies were negotiating a price between $5 billion and $6 billion. All Things Digital said they were talking about a price "well above" the $2 billion to $3 billion that Yahoo Inc offered for Groupon in failed acquisition talks earlier this year.
"I think investors think that might be overpaying," Kaufman Brothers analyst Mayuresh Masurekar said of the reported $5 billion-plus deal.
"There are no barriers to entry. There is nothing unique to what they're doing," he said of Groupon, "so there is a risk that Google overpays for Groupon at this point."
But he added that acquiring Groupon could help Google make further inroads into local advertising markets.
Google shares were down 3.3 percent to $562.73 in afternoon trading on Tuesday.
The deal would easily rank as the largest in Google's 12-year history. Its two biggest deals to date are the $3.1 billion purchase of online advertising firm DoubleClick in 2008 and the $1.65 billion acquisition of video site YouTube in 2006.
The reports of the Google-Groupon talks come as Google's dominant position in the Internet search market and its expansion plans have led to increased regulatory scrutiny, with the European Union announcing a formal investigation into the company's search practices on Tuesday.
Google's planned $700 million purchase of online travel software company ITA Software, currently being reviewed by U.S. regulators, is being opposed by several prominent travel industry companies, including Expedia Inc and Sabre Holdings Inc's Travelocity.
Both The New York Times and All Things Digital said the talks between Google and Groupon might still fall apart.
A Google spokesman said the company does not comment on rumor or speculation. A spokeswoman for Groupon declined comment.
Chicago-based Groupon, a privately held company launched about two years ago, was previously floated as an acquisition target of Google and Web portal Yahoo.
Previous media reports said Google had discussions with Groupon about buying the fast-growing e-commerce service for more than $2.5 billion.
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.
Groupon does not disclose its profits, but President and Chief Operating Officer Rob Solomon told Reuters in August the company was running at a "highly profitable rate" in the United States, its home market.
The company has been on a growth spurt, opening internationally and expanding to more U.S. cities. Groupon's subscriber base is expected to grow to 25 million in 2011 from 13 million this year.
There is constant speculation about Google's acquisition interests as it has a cash war chest of about $33 billion and does not pay a dividend to its shareholders.
Reporting by Alexei Oreskovic and Jim Finkle; additional reporting by Alexandria Sage in San Francisco and Sakthi Prasad in Bangalore; Editing by Derek Caney and John Wallace