European Commission Approves Google-DoubleClick Purchase

The European Commission approved Google's acquisition of DoubleClick on Tuesday, giving the Web-search champ access to the $27 billion online display ad market -- and putting pressure on Microsoft to close a deal with Yahoo.

Analysts say the prospect of Google GOOG using DoubleClick to dominate display-ad sales could force Microsoft MSFT to make another pass at acquiring Yahoo YHOO, even though the Web's top portal turned down the software giant's initial $44.6 billion offer last month.

"This approval of the DoubleClick merger gives Microsoft a greater sense of urgency, because Google has picked up another asset to help them compete for more ad dollars," said Scott Kessler, an analyst for Standard & Poor's equity research services.

Google shares jumped more than 6% Tuesday to close at 439.84.

Off Its Peak

Google's shares have tumbled amid the market downturn, a rare earnings miss in the fourth quarter, the proposed Microsoft-Yahoo merger and a report that fewer consumers are clicking on Google search ads.

Shares peaked at 747.24 on Nov. 7.

Approval from the European Union's regulatory body came nearly a year after Google proposed buying privately held DoubleClick, a leading display ad services company for $3.1 billion. The U.S. Federal Trade Commission gave the go-ahead in December.

Google already garners more than 50% of text-based paid search ads, the fastest-growing segment of the online ad market. Yahoo and Microsoft are leading sellers of graphical display ads, the second-fastest growing segment.

In its ruling, the commission concluded that the Google-DoubleClick deal didn't violate any antitrust laws.

It "would be unlikely to have harmful effects on consumers," the commission said.

The fact that the commission found nothing objectionable about the merger could pave the way for a Microsoft-Yahoo deal, says Ted Henneberry, co-chair of the European practice group for Heller Ehrman, a law firm.

"The critical thing is the dominance of Google and DoubleClick and their respective niches," he said. "And now you have those two together, so you can make argument that you need another strong competitor."

Microsoft bid $44.6 billion for Yahoo, a 61% premium above Yahoo's share price at the time. The offer is now worth about $40 billion based on Microsoft's stock price.

Microsoft might be more willing to make another bid for Yahoo, given the lack of criticism Google received from European commissioners, says David Garrity, an analyst for Dinosaur Securities. But the approval process is still no slam dunk, he adds.

"Bear in mind that it still took 10 months from the announcement of the (Google) transaction to the completion of the regulatory review," he said.

Executives Upbeat

With its approval of the DoubleClick acquisition, Google remains upbeat about its position in the online services market, Google Chief Executive Eric Schmidt said in a prepared statement.

"Google now has the leading display ad platform," he said. That, he adds, "will enable us to rapidly bring market advances in technology and infrastructure that will dramatically improve the effectiveness, measurability and performance of digital media for publishers, advertisers and agencies, while improving the relevance of advertising for users."

Google won't say how much revenue it will earn from display ad sales through DoubleClick.

Analysts say Google could post $200 million this year and more than $500 million in 2009.

The challenge for Google will be to sell ads to large Fortune 500 and 1000 companies that buy display ads but not necessarily text-based search ads, says Martin Pyykkonen, analyst for Global Crown Capital, an investment bank.

"What it allows them to do is to have packaged deals between search and display advertising -- a soup-to-nuts offering," he said. "Google has never been able to do that because they haven't had a display ad platform."