Did Creative Accounting Enable Google to Avoid Gov’t Review for Zagat Purchase?

TechCrunch reasoned that the Zagat acquisition price was less than the $66 million threshold used to trigger federal antitrust review — because the deal had closed without any review. The Wall Street Journal said the deal was worth $125 million (which I tend to believe).

How did Google pay $125 million and avoid federal review of the transaction (as required by Hart-Scott-Rodino)?

One potential answer came to me today in an email from a smart reader suggesting that much of the money was probably treated as compensation for the founders over time. There’s some legal but creative accounting probably going on that keeps the official purchase price below $66 million but awards the remaining $59 million in salaries or other deferred compensation to Tim and Nina Zagat, who are staying on as “co-chairs.”

While that’s probably not the only reason they’re staying on it’s likely one of them: to compensate the Zagats in a way that avoids government review of the transaction.

Matthew Ingram at GigaOm thinks that the deal raises potential antitrust concerns because Google’s now in the content-publishing businesses. (One could argue it has been in that business for some time in different forms.) Clearly many Google critics will use the deal to argue that Google will somehow favor Zagat in its SERPs as part of their broader antitrust arguments. I don’t think Google is going to do anything like that. Google will use the reviews content in Places and in its local-mobile apps.

I’m more interested in the question of what Google does with the Zagat brand. Unless Google is just buying an “archive” of old reviews, it will need to maintain the Zagat system of surveys and review collection — though it may try and shift that process exclusively online and to mobile. I believe, however, that the review collection pipeline is directly connected to the vitality of the Zagat brand. Accordingly, if I’m correct, “Zagat” will need to survive for some time at least.

If Google were to immediately rebrand Zagat apps and online properties as “Google Survey” it would transform Zagat into an asset of immediately diminished value. In some ways they’d have nothing more — beyond the archive of reviews — than before Zagat. In other words: their own ratings and review collection process through Places.

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2 Responses to “Did Creative Accounting Enable Google to Avoid Gov’t Review for Zagat Purchase?”

  1. Sol says at

    Google already ‘favors’ its sites in the results … and when acquisitions of theirs get busted for spamming (like SEO Book exposed – http://www.seobook.com/beat-it-beat-it – ) … they get a slap for a few weeks before getting re-inserted … with higher rankings.

    I remember all the brouhahah when About.com was sold and Google had made an offer for it. Google is a lot more powerful now, but it just seems standard operating procedure now.

  2. Sol says at

    Or just look at SEOBook’s latest post: http://www.seobook.com/google-eats-their-organic-search-results

  3. Business Insider Research Morning Call 9/13/11 | Athens Report says at

    […] of Google, something potentially less kosher: Google might have used “creative accounting” to get past antitrust review of its Zagat a…. The reported price was $125 million, and Google may have paid most of it as an earnout to get by […]

  4. Google May Have Pulled A Sneaky Trick To Avoid Government Review Of It’s Zagat Deal (GOOG) | Athens Report says at

    […] Greg Sterling of Screenwerk has an idea: […]

  5. Google’s Zaga Purchase Flies Under The Federal Radar By Paying Overtime? - Nibletz says at

    […] In a nutshell, since Google is paying back pay and not actually attributing that portion of the deal toward price of the company, no anti-trust review was necessary.  If you want to see it explained a little more in depth visit Sterling’s site here […]

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