Groupon Buying Yelp Makes Too Much Sense to Happen

Looking to turn heads as well as its stock price around, Groupon (NASDAQ: GRPN) is reportedly eyeing game-changing acquisitions. A couple of unnamed sources familiar with the matter are telling The Wall Street Journal that Yelp (NYSE: YELP) could be a target.

Right off the bat, the pairing doesn't make sense as a Groupon-led buyout. Yelp is actually more valuable at the moment, commanding an enterprise value of $2.3 billion to Groupon's $1.5 billion price tag. Groupon has a reasonable net-cash position, but not enough to leverage its way into offering an all-cash deal at an acceptable premium. Yelp would also likely have to settle for a stock deal here, and that's a dicey proposition.

Yelp stock has been a market laggard. The shares are trading flat in 2019 after declining 17% last year. An underperforming stock is often easy prey for a buyout buzzard, but that's not the case when the potential buyer is faring even worse. Groupon stock plunged 37% last year, and it's down another 6% so far in 2019. Groupon's coattails aren't worth riding in an all-stock deal, and taking on gobs of debt to make an all-cash offer isn't attractive. Is there a way that a deal can still happen? The answer is always yes, especially when the pairing would make the sum of both companies more valuable than their sluggish ways as separate entities.

Source Fool.com