Struggling Ad Group Blinkx Mulls US Merger

Blinkx (Other OTC: BLNKF - news) , the embattled advertising technology group, is mulling a merger with a New York-listed rival as it tries to curb ballooning losses.

Sky News has learnt that Blinkx, which is quoted on the London stock market, has been holding preliminary talks with Yume (NYSE: YUME - news) about a combination of the two companies.

Tentative discussions are said to be ongoing, although it is unclear whether they are sufficiently active or advanced to require formal confirmation by the two parties.

The idea of a merger is understood to have the support of key investors in both companies, market sources said on Friday.

One person close to Blinkx suggested that there were no live merger talks.

A tie-up would be likely to generate at least $15m (£10m) in annual cost synergies, one said, while the companies already know one another through an existing commercial alliance.

Blinkx, which has seen its shares decline by almost 30% during the last 12 months and by more than 80% over a two-year period, has struggled to convince the market that its business model is keeping pace with rapid technological change in the digital advertising market.

Last year, the company became the focus of criticism by an academic affiliated with Harvard Business School who alleged that the way it accounted for revenues masked the fact that much of its growth was predicated upon low-quality digital pop-up advertising.

Since then, it has continued to struggle, and last month took a writedown worth tens of millions of pounds related to the declining value of some assets.

If a merger with Yume did take place, Brian Mukherjee, Blinkx's chief executive, is said to have the support of leading investors to run the enlarged group.

Mr Mukherjee said last month that he was continuing to invest in core product areas such as mobile, video and programmatic trading while exiting other activities in desktop services.

Yume is also feeling heat from shareholders, with two activist investors - AVI (Other OTC: AVSFF - news) and Vertex - owning nearly 25% of its shares between them.

On Friday afternoon, Blinkx's shares were trading at around 17.5p, giving the company a market capitalisation of just over £71m.

In early 2014, it was valued at more than £900m and was being feted as one of Britain's most successful technology groups.

Yume is almost identically valued to Blinkx at $107m (£71.7m).

Blinkx was spun out of Autonomy, a software business which later went on to be bought by Hewlett-Packard, sparking a huge legal fight over the British company's accounting practises.

The dispute between H-P and Mike Lynch, Autonomy's founder, is ongoing.

A Blinkx spokesman declined to comment.