3 Reasons Why Google Won't Buy Akamai
This week's suitor chatter finds Google (GOOG) on bended knee.
Why not? Akamai has good looks and a killer personality. It's the top dog among content-delivery networks, helping websites serve up pages faster and files more efficiently.
BusinessInsider.com kicked off an initial rally in Akamai shares Wednesday night, reporting that a dozen sources -- inside and outside Google -- were hearing about a potential hookup. Bloomberg played party pooper within an hour, relying on sources claiming that a buyout is not in the works.
Let's go over a few of the reasons why this deal is unlikely to materialize.
1. Akamai has been buyout bait for years
Maybe Aunt Betsy doesn't want to be fixed up. Rumors have been swirling about an Akamai takeover for ages, and nothing has ever happened.
Bloomberg recently reported that Akamai has been the subject of more buyout rumors than any other company in this country from 2005 through 2010. Every time that the server farm has been singled out as an acquisition target has been nothing more than a wild goose chase.
Why will it be any different this time?
2. The Akamai model isn't what it used to be
A common argument for playing matchmaker with Akamai is that its stock has surrendered roughly half of its value this year. The follow-up that few mention is that it has fallen for a reason.
Content-delivery networks are in a price war. Smaller rivals including Level 3 Communications (LVLT) and Limelight Networks (LLNW) are offering ridiculous rates to land major websites and content-streaming services. It doesn't matter that Level 3 and Limelight are currently losing money. Low prices are likely to continue.
As the industry leader and pioneer, Akamai has several operating advantages over the competition. It's also the one that's profitable. However, it's hard to grow as quickly as it did during its speedster days when it has to compete with cutthroat competition. Analysts see revenue growing at a mere 11% to 12% clip in 2011 and 2012.
3. Regulators would have a hard time signing off on a deal
Google may be getting too big for its own good.
Antitrust regulators have been taking a long time to approve some of Big G's larger buyouts. Weighing in with a market cap of $4.3 billion before we consider a buyout premium, Akamai would be Google's biggest catch yet.
Would Google love Akamai? Absolutely. Akamai serves up a ton of content for some of the Internet's biggest players. There's some serious data to glean from the practice, and Google would love to diversify from its online advertising stronghold. However, if it took nearly a year for regulators to approve a much smaller deal for a travel software company, how long will it take to clear an Akamai purchase?
This is the ultimate deal breaker. The rumored snag that prevented Google from snapping up Groupon last year was that Groupon demanded a 10-figure termination fee if regulators nixed the deal. Akamai would likely have similar demands, and Google is unlikely to comply since it knows that clearing this hurdle is not a sure thing.
So let's let Aunt Betsy be. At the very least, let's stop dressing up Google as the groom.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google.