Now that content delivery network Limelight Networks (LLNW) has the upper hand in its patent war with larger rival Akamai Technologies, one theory is that Limelight is more likely to become an acquisition target. That’s one reason why shares are up about 20% since last Friday, when the court motion was announced.
But who’s going to buy Limelight? Its potential suitors include large telcos, large Internet companies, and CDN rivals, such as Akamai (AKAM) itself, which reportedly tried to buy Limelight during its trial. But there’s no reason to believe any deal is imminent. (And as CDN analyst Dan Rayburn notes, Limelight is in no hurry to sell itself.)
What’s the situation right now?
- Akamai could buy Limelight to truly dominate the CDN industry. (Many see it as Limelight’s most likely suitor.) But that might not pass the antitrust smell test. And Limelight probably won’t settle for anything other than a monster deal from Akamai.
- With the economy in the toilet, Microsoft (MSFT), Amazon (AMZN), IBM (IBM), and other large content/Internet companies who want to move deeper into content distribution/cloud computing have to be more careful with their cash. But a few — especially Microsoft, a big Limelight partner — could certainly afford Limelight if they wanted it.
- AT&T (T), another potential buyer, “already has what they think will be a successful product in motion,” a CDN industry insider tells us. So probably no deal there.
- Level 3 (LVLT) would — in theory — want Limelight to boost its growing CDN business. But it’s in weak financial shape, so a deal is unlikely.
- Cisco (CSCO) is a possibility, but it probably wants to buy inexpensive CDN software and intellectual property at this point — not a huge, fully-functioning network.
- A wild card: Comcast (CMCSA), the largest U.S. cable company, which wants to be a more important Internet content distribution player — especially for video, where Limelight specialises. “I think they’re crazy not to buy a CDN right now,” a CDN insider tells us. “But I think they want to develop an in-house strategy and they probably have too much of an ‘old school’ cable-co mentality to do anything interesting.”
What would Limelight go for? One industry insider suggests Limelight would want at least $9 per share, which is around $800 million — an almost 100% premium over today’s share price.
But it’s also important to note that Limelight’s financial situation has not dramatically improved. Wall Street still expects it to lose money for at least the next two years. Meanwhile, analysts only expect Limelight’s sales to grow 7% this year to $138 million. So any buyer would also need to be willing to keep investing in the business and settle for single- or low-double-digit growth rates.
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