DoubleClick: How Much is Too Much?

Conventional wisdom says Google "won" the bidding for DoubleClick, Microsoft "lost." But Aswath Damodaran, business professor and tech valuation specialist at New York University, notes that sometimes "people celebrate when they LOSE auctions." It's not like Microsoft doesn't have the cash to pay whatever it wants to pay for DoubleClick or any other acquisition. The bidding reached the point where it didn't make financial sense for them. Google will have to earn an economic return on the $3.1 billion it paid for DoubleClick. Maybe the momentum behind its text ad business means it can a higher price than Microsoft and still earn an economic return on the deal. It'll be years before anyone knows for sure. "Google is overjoyed that it pulled off this deal," says Damodaran. "What it tells us about Google is that the days of easy growth are over. They need bigger deals to grow earnings. We'll see $4 billion deals followed by $8 billion deals. Each has to be bigger than the last to have an impact." Damodaran has "always been wary of acquisitions" and long term, the ugly history of acquisition-happy companies bears him out. "Maybe Google is the exception," he says. "But I doubt it." -- Russ Mitchell. □