Google, Microsoft Said To Be Preparing Bids For Digg

Update: Digg CEO Jay Adelson is calling this post “completely inaccurate.” Lets see how this plays out…My source, which as I said is very, very good, sticks with the story. Digg may have had an angry Microsoft and Google on its hands this morning after this post, leading Jay to comment on this where they usually wouldn’t. Jay certainly wouldn’t say anything untrue in his post, but there’s a lot he isn’t saying in that post, too. See here and here for more thoughts on this.

User-generated news site Digg has been working with influential investment bank Allen & Co. (the ones that recently got Slide a half billion dollar valuation) for a few months now, and pitching big tech and media companies on a sale.

And despite a number of false starts, this time a sale looks like it might actually happen, and soon. We hear from a source very close to the deal that four companies are in heavy due diligence with Digg - two media/news companies, and two big Internet companies - Google and Microsoft. And Google and Microsoft are on the verge of making their bids.

Digg is prepared to take less than the $300 million Allen & Co. were floating late last year. Google, our source says, will likely bid $200-$225 million, which Digg would likely accept.

Microsoft is looking at a somewhat lower price. That makes sense, since most of Digg’s revenue today comes from a three year advertising deal that Digg signed with Microsoft last year. That deal has revenue guarantees - and Microsoft may be hesitant to value Digg based on revenue that they supply.

Any sale is likely to give Microsoft an option to terminate that advertising deal, which means Google isn’t valuing Digg based on revenue, either. But it is a big slap in the face to Microsoft to steal Digg away, and Google can certainly generate revenue on all those page views.

More as this develops, but we may be looking at a bidding war between Microsoft and Google over Digg. Plus any late comers to the table.

Digg was founded in late 2004 and has raised $11.3 million in funding.

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