Yahoo! Defends Ad-Sales Turf

For Yahoo!(YHOO), small acquisitions such as Flickr and MyBlogLog have been the norm in recent years.

But on Monday, the Internet giant said that for $680 million in cash and stock it would acquire the remaining 80% stake in online advertising firm Right Media that it didn't already own.

The move marks Yahoo!'s largest acquisition since it paid $1.6 billion for ad technology firm Overture in 2003.

Combined with Yahoo!'s 20% stake, the deal values the profitless Right Media at more than 12 times the $70 million it expects in 2007 revenue -- for a total of $850 million. Yahoo! paid $45 million last October for its initial 20% stake, meaning the company is now willing to pay almost four times what it thought was a fair value price just six months ago.

The size of the deal -- and its rich valuation -- underscores the value Yahoo! places on Right Media's auction approach to selling ads. In a conference call for investors, Yahoo! said the amount it was willing to pay was more influenced by the boost it felt Right Media could give its efforts to sell display advertising than by the stand-alone value of the company.

The purchase of Right Media, which takes a cut from offering a stock-market-like exchange that connects buyers of online advertising with publishers, is intended to help bolster the rates Yahoo! gets for its own ad space. A growing amount of this ad space comprises so-called nonpremium inventory, placements outside of key spots on Yahoo!'s Web sites that also usually garner lower rates.