Google to buy DoubleClick for $3.1 billion

Google Inc. said on Friday it would buy Web advertising tools provider DoubleClick Inc. for $3.1 billion, its biggest acquisition, to accelerate its push into the graphic ad market now dominated by Yahoo Inc.

Google, the juggernaut of search-based advertising on the Web, beat out other DoubleClick suitors that included Microsoft Corp,  and Yahoo in the final stages, sources familiar with the negotiations said. Time Warner Inc.’s AOL online unit had earlier considered a bid.

The deal propels Google deeper into the Web display ad market, which includes richer graphic and online banner ads for corporate brands, and represents half of online marketing. Until now, this business has been dominated by rival Yahoo.

“This shores up Google as the absolute leader in the online space,” said Forrester Research senior analyst Shar VanBoskirk. ”This rounds out their capabilities in everything in the online space. There isn’t anything they don’t have.”

New York-based DoubleClick would also fortify Google with ad-targeting and analysis capabilities as the company expands into print, radio, video, mobile and television ad markets.

“The DoubleClick platform touches so many of the existing Google customers,” Google Chief Executive Eric Schmidt said on a conference call. “It accelerates our entry into some of these markets by several years.”

The all-cash deal is expected to close by the end of the year, once the deal receives necessary regulatory approvals.

The announcement comes just six months after Google paid $1.65 billion for video-sharing site YouTube.

DoubleClick, a dot-com stock market star that was a leading independent player in the first generation of online advertising during the 1990s, has been majority-owned by San Francisco private equity firm Hellman & Friedman since 2005.

Hellman & Friedman paid $1.1 billion in stock and debt for its stake. JMI Management is a co-investor in DoubleClick.

Some analysts felt Google paid a very steep price for DoubleClick, speculating the Web search leader may have been willing to do so to keep it out of the hands of rivals.

“This is an amazing outcome for DoubleClick,” said Jordan Rohan, an analyst with RBC Capital Markets. He said DoubleClick was a strategic asset because it sits between advertisers and publishers, and has robust technology.

“Google could not let this go to Microsoft and therefore paid what they needed to pay,” Rohan said.

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By comparison, one of the top publicly traded online advertising companies, aQuantive Inc., has a market capitalization of about $2.2 billion.

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The Wall Street Journal said last week Microsoft pulled back once the DoubleClick auction price topped $2 billion.

DoubleClick was the most successful firm to emerge from so-called Silicon Alley, the downtown Manhattan corridor that gave birth to dozens of start-ups which sought to move Madison Avenue advertising online.

Google’s CEO said his company had looked at merging with DoubleClick for several years and that employees of the two companies already regularly collaborate. Highlighting this closeness, Google and Doubleclick share the same block-long office building in New York’s former meat-packing district.

Founded in 1996, DoubleClick offers a digital ad marketplace that connects ad agencies, marketers and Web site publishers. It has more than 1,500 corporate clients.

One sticking point in the deal could be objections from antitrust regulators like the Federal Trade Commission, which have not yet had to look closely at the Internet ad market.

“I think someone at the FTC will have their hands full, because this is a new area,” said CIBC analyst Paul Keung.

Schmidt brushed aside such concerns, saying “This is a very, very competitive market in terms of the number of choices.”

DoubleClick CEO David Rosenblatt was optimistic the deal would be approved. “We believe this is a combination that will generate significant efficiencies for the market,” he said.

Shares of Google, down $1.10 in regular session trading ahead of the news, fell another $2.30 to $463.99 in after-hours trade on the announcement. Yahoo rose 4 cents to $31.41.