Google Grabs YouTube

Updated from 4:25 p.m. EDT

Finishing off one of the tech sector's worst-kept secrets, Google(GOOG) announced an agreement to acquire online media phenom YouTube for $1.65 billion in a stock-for-stock transaction.

The companies announced after the bell Monday that the acquisition would combine one of the largest and fastest-growing online-video entertainment communities with Google's expertise in organizing information and creating new models for advertising on the Internet.

"The YouTube team has built an exciting and powerful media platform that complements Google's mission to organize the world's information and make it universally accessible and useful," said Eric Schmidt, Google's CEO. "Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers."

The number of Google shares to be issued in the transaction will be determined based on the 30-day average closing price two trading days prior to the completion of the acquisition. Both companies have approved the transaction, which is subject to customary closing conditions and is expected to close in the fourth quarter of 2006.

YouTube will continue to be based in San Bruno, Calif., and all YouTube employees will remain with the company. The site will also continue to exist as a separate brand with its current name, rather than being folded into Google.