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Millennial Media shares fall sharply on news of deal, losses

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Shares of Millennial Media fell nearly 20 percent in early trading Wednesday on news that the Canton mobile advertising company would buy a competitor at a bargain price and that its second-quarter losses widened.

Millennial announced Tuesday it struck a deal to acquire Boston-based competitor Jumptap in a mostly stock deal worth more than $200 million, the company said Tuesday. The deal would make the company's mobile advertising market share rival that of Google, the company said.

The company meanwhile said losses widened in the second quarter of the year, while revenue climbed 45 percent.

With the Jumptap deal, Millennial would gain a host of information the Massachusetts company gathers on more than 100 million mobile phone users, helping it to more narrowly target demographics advertisers are trying to reach. Both companies make money by gathering space for ads on smartphone apps and mobile friendly websites and selling it to advertisers who want to reach a specific audience.

"We are thrilled to add Jumptap's capabilities, their solution set and strong team as part of our mobile advertising business, and look forward to partnering with the team," said Millennial CEO Paul Palmieri in a statement.

Millennial shares were trading at $6.82 shortly after 10 a.m., down nearly 20 percent from Tuesday's closing price of $8.50.

Shareholders of privately owned Jumptap would be 23 percent owners of Millennial after the deal closes, receiving 24.6 million Millennial shares, which trade on the New York Stock Exchange. Millennial shares closed at $8.50 Tuesday, before the deal was announced.

The deal also includes $12 million in cash and values Jumptap at about $232 million, officials said. The deal is subject to approval by Millennial stockholders and expected to close by the end of the year.

Jumptap's estimated value in the deal was less than twice the amount venture capital investors had put into the company in recent years – about $120 million. Venture capitalists typically look for a much larger return on investment, several times over their initial investment.

Meanwhile, Millennial lost $3.1 million, or 4 cents per share, on $57 million in revenue in the quarter ended June 30. That compares with losses of $2.2 million on $39.4 million in revenue in the same quarter of 2012.

Millennial has been a dramatic success story in the Baltimore technology industry, growing from a startup in a local incubator to go public in March 2012. But shares have slumped since the initial public offering, which was priced at $25 per share, as Wall Street analysts have shown dissatisfaction with the company's growth.

Palmieri said the Jumptap deal would bring Millennial's market share on par with Google's. He cited data from market research firm IDC showing that Jumptap accounted for about 11 percent of the mobile advertising market last year, compared with Millennial's 18 percent.

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