Yahoo! Takes the Plunge on Overture

Updated from 9:44 a.m. EDT

In a long-rumored deal that reflects growing anxiety about the ascendancy of Internet search engine Google, Yahoo! (YHOO) agreed to acquire its pay-for-click Web partner Overture (OVER) for $1.6 billion.

The deal allows Yahoo! to take advantage of the massive gains in its stock over the last year by buying a rival whose shares have been depressed amid questions about its growth prospects. Despite a selloff following last week's second-quarter earnings report, Yahoo! has seen its shares more than triple off last fall's lows and remain near their 52-week high.

"The combined assets position Yahoo! as the largest global player in the rapidly growing Internet advertising sector," Yahoo! CEO Terry Semel said in a press release Monday. He noted that Overture is a leading player in one of the Internet's fastest-growing areas, paid search -- an area in which Google is exerting growing influence.

The price comes out to about $24.41 per Overture share, consisting of 0.6108 Yahoo! share and $4.75 in cash. Shares in both companies rose in premarket trading Monday, with Yahoo! adding 43 cents to $32.62 and Overture adding 84 cents to $22.35.

On the Cheap?

Yahoo! will pick up Overture's more than 88,000 advertisers globally, a large affiliate distribution network, technology infrastructure in both commercial and Web search, and a big portfolio of intellectual property.

Rumors of the transaction were reported by TheStreet.com in May. In April, Yahoo! raised some eyebrows around the industry by coming to market for $750 million in cash via a convertible bond offer. Some investors surmised that the company, which has a strong financial position, was raising the money in a prelude to a bid for Overture.

Overture has long relied on partnership agreements with Yahoo! and Microsoft (MSFT) that provide as much as two-thirds of its revenue. Early this month it unveiled a service for placing advertising directly on content providers' sites -- a Google specialty that stirred up another round of debate about how big a threat the still-private search engine was to Overture's business model.

The companies said they expect to complete the deal in the fourth quarter and said Overture's Ted Meisel will continue to head up the company, which will stay in Pasadena after its acquisition by Sunnyvale, Calif.-based Yahoo!.

>To order reprints of this article, click here: Reprints