According to various reports originating with option trading activity, there are rumors circulating that Akamai (NASDAQ:AKAM, news, filings) could be a takeover target. The likely buyer? Obviously a telco or a cable company according to Silicon Alley Insider. I know I'm something of an M&A groupie at times, but there are merger possibilities out there that just make no sense, and this is one of them. No, it's not that a telco or cable wouldn't find Akamai of value, nor is it that they couldn't find some cost savings, nor that the combined company couldn't kick some major ass. It's just that pesky net neutrality thing, and the sloppiness of the conversation around it.
You see, as a layer of caching and local delivery of bits built on top of existing infrastructure, Akamai is a CDN juggernaut as an independent entity with the scale to dominate both in terms of raw bits and managed services. But as an adjunct to a Verizon or Comcast or another major last mile provider, they are nothing more than a premium fast lane that charges additional money from content providers by bypassing much of that company's own infrastructure. There would be the traditional internet connectivity, and then there would be the faster way where you pay more money to the last mile provider who will then cache your data close to the consumer for maximum speed. And why invest in the traditional internet when you can make more money from the fast lane bypassing it? If you think the folks upset by the Google/Verizon detente were upset last week, just imagine what they'd think of an Akamai/Verizon behemoth that not only owns a last mile bottleneck to a solid fraction of the country but holds marketshare in the CDN sector of, what is it these days 80%?
Without certainty in the network neutrality regulatory domain, I don't think any last mile provider can take the risk of buying Akamai strategically because it may provoke a change in the rules that would negate all the benefits or worse. The wording of proposed network neutrality legislation is generally quite sloppy, and fails to understand that fast lanes already exist throughout the internet in a variety of forms. Why do you think we haven't heard a peep out of AT&T's CDN in so long? It isn't that they don't have the money to put behind it, or that they can't find anyone to buy CDN services from them. If it were successful and visible, it would become giant target. Besides, if you think the NBC/Comcast thing caused a ruckus, think about NBC/Akamai/Comcast for a moment.
Any large last-mile telco or cable that tried to buy Akamai in the current environment would find itself the subject of all sorts of investigations. They don't need or want that, and hence I think the options traders are barking up the wrong tree.
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