Groupon Buyout Could Be a Fantasy

While Groupon (NASDAQ:GRPN) shares still are a shell of what they were back when the company came public just more than a year ago, they’ve made a few people some money in the past couple months. Those who got in at the mid-November bottom are looking at nearly 90% gains since that time.

However, because much of that rally has been fueled by buyout rumors — Google (NASDAQ:GOOG) has been the main culprit, though Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT) are other possible suitors — anyone in GRPN shares right now should be keeping one eye absolutely locked on the news.

Buying a stock on buyout speculation can be a good way to lose money — and quick. Just as Groupon has been kept aloft on hopes of a buyout, it easily could get hammered should companies start publicly expressing a completely lack of interest.

Also, many investors seem to have forgotten an important aspect of Groupon: its unusual governance structure that includes Class A and B shares. The public investors own the former, while the other class is held firmly by the co-founders, which include Eric Lefkofsky, Bradley Keywell and CEO Andrew Mason. Each Class B share represents 150 votes, meaning the co-founders have 57.4% voting control.

Thus, a bid would have to be on Mason & Co.’s terms. This pares down Groupon’s buyout possibilities considerably. Such strong voting positions by a group of co-founders is a much bigger deterrent for activist investors like Carl Icahn than other voting controls, such as “poison pills,” which are easily dealt with.

It’s impossible to know what the co-founders might be thinking right now. But back in late 2010, the co-founders decided to rebuff a $6 billion buyout from Google, thinking the offer too cheap. (Of course, since coming public, Groupon has only gotten cheaper, now sitting at a market cap of just $3.2 billion.)

However, GRPN has been aggressively investing in its physical goods business, which appears to be getting lots of traction — that’s important, as the core daily-deals business is deteriorating at a rate of about 20% per quarter. Groupon’s co-founders also might want to allow its other businesses, such as mobile payments, to take root.

So even if the co-founders are opening up to the idea of a buyout, it’s reasonable to think they’d want to let their hand play out a little longer in an attempt to grab more value from a deal.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.