Groupon IPO delayed but its exclusivity rules are probably legal
Speculation about Groupon Inc., the online coupon site, is spiraling this week with news that the company intends to delay its initial public stock offering.
Reuters quoted sources as saying Groupon's meetings with investors had been postponed because of market volatility, though the insiders still said the stock would go public before the end of the year.
Bubbling beneath the headlines about the viability and value of the discount site (estimated at up to $30 billion) are complaints from consumer advocates and competitors about how the fast-expanding operator treats customers and the competition.
I previously wrote about complaints regarding Groupon’s fuzzy rules about the expiration of coupons. In fact, various state laws prohibit such discount offers from losing all value on an expiration date. More recently, a businesswoman emailed the Big Picture to complain that the site is trying to elbow out other online discounters by requiring its business partners to sign six-month exclusivity agreements.
Under a provision in Groupon’s contracts, businesses that offer discounts via Groupon are not allowed to sign on with another discount promoter for three months before and three months after the Groupon deal. “It seems to me that there is no reason for Groupon to prevent businesses from offering similar promotions other than to squash competition,” said a Phoenix acupuncturist who used the site.
Speaking to the Kansas City Business Journal this spring, a Groupon spokeswoman answered similar complaints about the six-month blackout period. The rep said the exclusivity arrangement was not meant to shut out competition but to prevent “merchants from cannibalizing their own business.”
You would think the businesspeople themselves would be in the best position to judge what would, and wouldn’t, damage their operations. But, that said, at least one antitrust authority tends to agree that Groupon is not legally prohibited from requesting exclusivity from its business customers.
Georgetown University law professor Howard Shelanski said in an interview that it is very difficult for businesses to prove that rivals are unreasonably shutting them out of a market. “The barriers to entry appear to be not particularly high, because Groupon has a number of competitors,” Shelanski said. “This sort of arrangement could irritate competitors. But you would have to show a lot more -- really that there is an effect on competition” -- to constitute an antitrust violation.
Shelanski said that if the six-month blackout period for signing other online discount deals is truly onerous, competitors without the exclusivity requirement should arise and succeed. “If that alternative hasn’t entered or survived in the marketplace, it suggests the exclusivity is not such a bad thing to customers,” Shelanski said.
As imposing as it may look to competitors, some analysts have quite the opposite opinion about Groupon. They wonder how it can continue to grow and justify its high costs, with a growing number of competitors gnawing at its ankles.
The company has not commented on the delay in the initial stock offering.
-- James Rainey
Photo: Groupon founder and Chief Executive Andrew Mason, whose group discount company has slowed an initial public offering of stock that had been estimated to value the company at up to $30 billion. Credit: Anthony Bolante / Reuters