Groupon Tour

Dan Frommer, Business Insider

Hey Google, keep your money. You're going to need it.

Each and every Groupon board member stood to gain millions, hundreds of millions, or even more than a billion dollars by accepting Google's $6 billion offer to acquire the company.

Groupon cofounders Brad Keywell and Eric Lefkofsky might have made as much as $600 million and $1.8 billion, respectively.

So how in a sane world could these people have told Google no?

How do you turn down hundreds of millions of dollars in personal wealth?

The simple answer, of course, is by believing you are NOT saying "no" to hundreds of millions of dollars or a billion dollars, but are saying "yes" to billions of dollars.

But there's also a more nuanced answer.

Confirming lots of speculation, a source close to Groupon board members tells us that anti-trust concerns ultimately forced Groupon to turn down Google's $6 billion offer.

This source says the view on Groupon's board was that a Google-Groupon merger would draw more regulatory scrutiny than any other deal Google has ever done.

That's saying a lot.

Google is currently undergoing two anti-trust investigations – one from Europe and another over the ITA deal. Google also went through severe regulatory trauma acquiring DoubleClick and AdMob. Anti-trust heat halted Google's move to take over Yahoo's search business.

Because of this view – that Google-Groupon might not be allowed to go through and that it would take months and months to find out the bad news – board members decided they would need a significant break-up fee if they were to accept Google's offer.

How significant?

We don't know the number, but our source says the board wanted a break-up fee akin to the one Google gave DoubleClick. A source close to DoubleClick's executive team at the time of that merger tells us the company "got significant protection." In agreeing to acquire AdMob for $750 million, Google also agreed to a $700 million kill fee.

Whatever the number Groupon's board wanted, Google balked.

This made the choice easy for Groupon's board, and they walked away from the deal. There was too much risk involved to take a deal that would only pay a 3X multiple on the $2 billion run-rate Groupon started seeing in November and December.

Looking back on it, our source says he never expected the deal to get done.

The source of the board's confidence is that not only is Groupon growing, the pace of its growth keeps growing.

The reason you've seen so many different numbers for Groupon's revenue run-rate in the press – $500 million, $800 million,  $1 billion, and $2 billion – is that it keeps inflating at a non-linear rate.

A source close the company tells us Groupon added 4 million email subscribers in the last week. Groupon has 40 million subscribers total – up from 1.5 million this time last year and 400,000 the year before that.

Groupon employed 124 people in December 2009. In November 2010, it hired 190 in Chicago alone, raising its worldwide headcount to 3,100.

"Groupon is a spectacular company," says this source, echoing the board's sentiment.

"It's literally defining a new form of interaction with the Internet. It has created perhaps the greatest form of advertising ever conceived. It is perfect.

"Groupon could not have existed before now. It's a business that can only happen now because prior to now you don't have the social elements of the Web working the way that they should and you don't have merchants appreciating the opportunity the way they could or should.

"We thought of something and we did it and now 2,000 people have copied us, yet we still have 70% of the market and we're executing at a pace that no one's ever seen. We're doing something special."

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