Eric Schmidt deposition reveals why it was OK to overpay for YouTube

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Eric Schmidt deposition reveals why it was OK to overpay for YouTube

Tue Oct 06, 2009 @ 12:39PM PST

By Eriq Gardner

Youtube_logo Google CEO Eric Schmidt gets a lot of credit for being a financial genius. But he doesn't seem like the shrewdest negotiator.

CNET got ahold of a deposition transcript from last May in Viacom's litigation against YouTube for copyright infringement. In it, Schmidt reveals he told Google's board that YouTube was worth $600-700 million, but that he asked the board to approve an acquisition price of $1.65 billion anyway.

Why the billion-dollar premium? Here's part of Schmidt's answer:

"In the deal dynamics, the price, remember is not set by my judgment or by financial model or discounted cash flow. It's set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube."

That seems like an awfully high price to pay for the premium of moving quickly.

Just for fun, let's compare it to Disney's $4 billion acquisition of Marvel. 

In an S-4 statement, Marvel says it never convinced Disney to up its original offer significantly. Instead, the companies went back and forth about what actions Marvel's board would be permitted to take if it were to receive a superior offer from a third party.

Two different acquisitions and two different strategies for dealing with competitive offers. Disney haggles over deal protection terms whereas Google just prefers to overpay.

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The Hollywood Reporter, Esq. blog focuses on how the entertainment and media industries are impacted and influenced by the law. It is edited by Matthew Belloni with contributions from veteran legal reporter Eriq Gardner and others. Before joining The Hollywood Reporter, Belloni was a lawyer at an entertainment litigation firm in Los Angeles. He writes a column for THR devoted to entertainment law. Gardner is a New York-based writer and legal journalist. Send tips or comments to Matthew.Belloni@thr.com

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