Updated from 11:30 a.m. EDT

Primedia

(PRM)

announced Monday that it would acquire

About.com

(BOUT) - Get Report

, blending a conventional magazine publisher with an Internet media company.

Primedia, the publisher of

Seventeen

and

New York

, among many other magazines, and About.com, with a network of 700 Web sites on topics ranging from pets to real estate, emphasized that their efforts to offer niche content are complementary.

The all-stock deal was initially valued at $690 million by the companies. But investors expressed some serious doubts, selling off Primedia's shares, which lost about a quarter of their stock market value on Monday. As a result, the total value of the deal declined to about $517 million.

New York-based Primedia said it would give About.com shareholders 45.2 million shares, or 2.3409 shares for each About.com share. Based on Primedia's closing price of $15.25 on Friday, About.com shareholders would have received stock valued at $35.70 for each of their shares, a premium of about 50%.

But Primedia's stock, plunged $3.88, or 25%, to close at $11.38 Monday, meaning that the stock About.com's shareholders would receive was now valued at $26.63 a share, a premium of 10%. About.com's shares, meanwhile, closed up just 31 cents, or 1%, at $24.19.

Recent worries about a slowdown in online advertising spending have negatively affected Internet companies like About.com. The company's revenue in the latest quarter rose 33% over the previous three-month period, demonstrating that it may be coping with the climate better than others.

Still, the adverse advertising environment may explain why investors quickly bailed from Primedia following the announcement Monday, said Karl Choi, an analyst at

Merrill Lynch

, which advised Primedia on the deal along with

Wit Soundview

.

Choi noted in a research note issued Monday that the acquisition price is well below About.com's 52-week high of $105.81. "The timing," he wrote, "could prove fortuitous as it is at the absolute height of uncertainty regarding Internet advertising."

Despite the market's reaction, Primedia and About.com marched ahead, comparing their deal to the pending marriage of

America Online

(AOL)

and

Time Warner

(TWX)

-- the most prominent example of an online business uniting with an old media stalwart.

"While the AOL and Time Warner merger announced earlier this year created a mass media powerhouse of new and traditional media," Tom Rogers, chairman and chief executive of Primedia, said, "The Primedia and About merger creates the leading model for the integration of traditional and new media niche content."

New York-based About.com had no debt at the end of September and $133 million of cash, according to the company. Scott Kurnit, chairman and chief executive of About.com, noted in a conference call Monday with analysts and investors that his company expects to reach operating profitability by the first quarter of next year.

"We believe that by being merged with Primedia, we will grow faster and farther over time than as a stand-alone company," Kurnit said. The union also would enable About.com, which relies heavily on advertising revenue from dot-coms, to get better access to more stable traditional advertisers, Kurnit added.

For Primedia, the accord presents an opportunity to extend its Internet reach more quickly and efficiently than it could independently. Rogers called the deal a "spectacular transformation" for his company, and added that he turned down chances to merge with other conventional media companies.

"We are convinced that the future of the media world is the confluence of traditional media and new media," Rogers said during the conference call. "They are tied together and truly integrated. And this accelerates our ability to create a large scale new media presence."

After the deal is completed -- expected in during the first quarter of 2001 -- Kurnit will become chief Internet officer and board member of Primedia and will report to Rogers. The combined company will keep the Primedia name.

In addition, the acquisition is expected to provide cost savings by scaling back About.com's marketing expenses and reducing Primedia's own spending on Internet businesses. In the first year, the combined company expects to add $47 million of earnings before interest, taxes, depreciation and amortization.

Moreover, with a 1,600-person sales force and 60,000 advertisers, Primedia, which is majority-owned by the investment firm

Kohlberg Kravis Roberts & Co.

, would be able to promote About.com's specialty sites while using About.com to drive its own magazine subscriptions.

The two sides, meanwhile, hope they can attract more advertisers who want to target specific audiences. About.com provides content on hundreds of issues, including pregnancy, daycare, career planning, auto repair and wireless communications, while Primedia's print, video and Internet businesses publish similar specialized information.

Rogers said in the conference call that he believed he had found his company's parallel in the online world. "With this transaction, Primedia has been transformed," Rogers said. "Niche is king."