Yahoo acquires Overture for $1.6B
By Michael Liedtke
Associated Press
SAN FRANCISCO — Yahoo! Inc. yesterday snapped up online advertising pioneer Overture Services Inc. for $1.6 billion, supplying the Internet powerhouse with another potent weapon in a looming search engine showdown with Google and Microsoft.
The cash-and-stock deal valued Pasadena-based Overture at $24.82 per share — a 15 percent premium over the stock's closing price last week. The price consists of $312 million in cash and 0.6108 Yahoo shares for each of Overture's 65.7 million outstanding shares.
Overture's shares rose $2.54 to close at $24.05 yesterday on the Nasdaq Stock Market. Yahoo's shares added a penny to close at $32.30 on the Nasdaq.
The announced acquisition continues a recent flurry of deals in the lucrative business of online search.
Overture has been one of Google's fiercest rivals and now its ad-based search engine threatens to become more formidable by tapping into Yahoo's greater resources, including $1.1 billion in cash as of June 30.
Privately held Google, which provides some of Yahoo's search results, declined to comment.
Like Yahoo, Microsoft's MSN service had been collecting a steady stream of profits from Overture.
Although Yahoo executives said they hope to maintain Overture's existing alliances with partners such as MSN, it seems improbable that the rivals will want to subsidize each other, said Danny Sullivan, editor of the industry newsletter Search Engine Watch.
"This hurts MSN because Overture had been one of its best buddies," Sullivan said.
MSN has been pouring more resources into online search in an effort to become less reliant on services provided by outsiders. Besides relying on Overture for some of its search results, MSN also draws upon Inktomi, a search engine service that Yahoo acquired earlier this year for $279.5 million.
During the past 18 months, Overture has become increasingly valuable to Yahoo, prompting predictions that the two companies eventually would unite.
Overture has played a pivotal role in Yahoo's recent financial revival, accounting for roughly 20 percent of Yahoo's revenue of $604 million during the first half of this year.
Conceived by dot-com entrepreneur Bill Gross in 1997, Overture developed a search engine that sorts its results based on how much advertisers are willing to pay to be ranked under specific words.
Overture has cashed in on pay-for-performance's popularity, attracting 88,000 advertisers while generating earnings of $114 million since it first became profitable in the summer of 2001.
But the company's success attracted more competition, most notably from Mountain View-based Google, which has lured away pivotal partners such as AOL and EarthLink and spurred pricing concessions that have lowered Overture's profit margins.
Although it followed in Overture's footsteps, Google now has a slight edge over its rival in the United States. Domestically, Google's network generated about 54 percent of all paid search results compared to 45 percent for Overture, according to market research compiled by comScore qSearch.
As a counterpunch to Yahoo's moves, Microsoft seems more likely to acquire a search engine company, Sullivan said. Potential candidates include Ask Jeeves Inc., FindWhat Inc. and perhaps even Google.
