What Happens If GOOG/DCLK Blocked or Purgatory?*

It’s time to start thinking about what happens if Microsoft wins the anti-Google/DoubleClick lobbying battle and the deal either gets killed or just enters permanent purgatory.  So far, by our count, Microsoft has managed to get regulators in the U.S., EU, and Australia hot and bothered, and they’re probably still working on any other potential powers-that-be.  So what are the implications?  Note: Since publishing this post, we have received additional information.  Please see: Google/DoubleClick Inside Story: “FTC Will Approve”, Microsoft Could Litigate

After taking a look at the Merger Agreement, here are some key points:

Every day of delay is good news for Microsoft and Yahoo.  The more time Google and DoubleClick competitors have to crank up their own third-party serving and sales businesses, they better off they’ll be when Google and DoubleClick finally start working together.  In reality, Google and DoubleClick have such commanding positions in their respective businesses that this lead time probably won’t help much, but it’s better than competing with the combined company today.

Neither Google nor DoubleClick can just singlehandedly walk away.  According to the merger agreement, the parties can mutually call off the merger anytime, but neither can kill it singlehandedly unless one of a bunch of different conditions are met.  The most relevant of these conditions is if the deal is blocked by a government agency or remains in purgatory through mid-2008, which seems an increasing possibility.

There is no specified “break-up fee.”  If Google gets sick of the distraction and bad “world-domination!” press it will likely get as Microsoft’s lawyers and PR machine really get cranking, it can’t just pay a few hundred million break-up fee and go away.  Instead, barring a material change in DoubleClick’s business or a final, un-appealable decision by a government agency, it will be on the hook for the whole $3.1 billion (real money, even to Google).  Fortunately for Google, if the merger is not consummated by April 16, 2008 (with extensions possible under a variety of circumstances until October 16, 2008), it will then regain the right to walk away.

If the government blocks the deal, there is no termination fee.  If this happens, each side pays its own costs, and DoubleClick hopes that Microsoft and Yahoo are still interested in buying it for something similar to what Google was willing to pay (Given that Microsoft just shelled out $6 billion for aQuantive, this seems reasonable).  Given that Google presumably has a lot of time-consuming legal recourse in the event that a government agency blocks the deal, however, the time necessary to achieve a “final, nonappealable” verdict will probably outlast the mid-2008 horizon of the deal.

If early 2008 comes around and Microsoft believes it is winning the lobbying war, Microsoft or Yahoo might make a preemptive offer for DoubleClick.  This could entice DoubleClick to call off the Google merger as soon as it is legally able to (mid-2008) and/or negotiate a settlement payment with Google in exchange for a mutual release.  Google would probably hold out for a major number, if only to spite Microsoft, but after mid-2008 DoubleClick would presumably be free to negotiate with any third party.

See Also: Google/DoubleClick Deal in Trouble

*Note: Since publishing this post, we have received additional information.  Please see: Google/DoubleClick Inside Story: “FTC Will Approve”, Microsoft Could Litigate