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Overture Reaches Out and Investors Flee

Investors are responding to Overture Services' (OVER) buying spree with a selling spree of their own.

Overture, which has built a successful pay-per-click search engine from scratch, announced for the second time in a week on Tuesday that it was making a major acquisition to expand its Internet search business. The company said it would acquire the Web search unit of Norway-based Fast Search & Transfer, operator of the search engine, for $70 million cash plus up to $30 million in additional performance incentives.

The deal follows Overture's announcement last Tuesday that it was acquiring AltaVista, the once-pioneering and now-faded search business owned by CMGI (CMGI) for $140 million in stock and cash.

Overture says the two transactions will expand its business opportunities and improve its technology, while outsiders speculate that a key motivator for the deals is to keep certain technology out of the hands of current and potential competitors.

Whatever the factors behind the purchases, the deal will certainly penalize earnings next year, just as Wall Street is turning a closer eye on Overture's financial progress. Investors sent Overture shares down to 52-week lows Tuesday. At midafternoon, they were down $2.12 at $15.25, a drop that adds to last Tuesday's 20% haircut following the AltaVista deal. Overture's shares are now trading at half their price of six weeks ago.

Reaching Out

At issue for investors are the costs, benefits and implications of the deals, which will expand Overture's operations beyond what has been its core business. Until now, Overture has focused on pay-for-performance search, which enables advertisers to bid on specific search terms they believe potential customers would be typing into a search engine. Highest bidders for specific terms, such as "Arizona vacation," receive the most prominent listings among search results; advertisers pay only when Internet users click on their listing to visit their site.

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