That's the burning question Friday morning, following Yahoo!'s late-night announcement Thursday that it had priced $750 million in convertible bonds.
The Internet media and services company, which has $1.5 billion in cash on hand and generated $221 million in free cash flow in 2002, wouldn't appear to require more cash unless it were about to make a major acquisition.
And that scenario has led some to speculate that the likeliest suspect for Yahoo! to acquire is Overture, the fast-growing paid search company.
On Friday morning, Overture's shares rose 76 cents, or 6%, to $13.47, while Yahoo!'s shares fell 46 cents to $23.88.
A Yahoo! spokeswoman acknowledged Friday morning that the money could be used for "future potential acquisitions," but declined to be more specific about potential targets, such as Overture. "We don't speculate on
mergers and acquisition activity," she said.
An Overture spokesman said, "We never comment on market speculation and rumor."
Overture's shares, battered by concerns such as its dependence on major business partners -- chiefly Yahoo! and
-- are trading at lows last seen in September 2001. Overture's stock has lost 50% of its value since the beginning of the year.
Certainly, Overture is playing a major role in Yahoo!'s revenue recovery this past year. Yahoo!'s sponsored search revenue, derived primarily from the company's relationship with Overture, will grow from $131 million in 2002 to as much as $240 million in 2003, according to Yahoo!.
This isn't the first time that Yahoo! -- which recently purchased search technology company Inktomi -- has been rumored to be interesed in a pay-per-click advertising acquisition. Last month, published reports speculated that Yahoo! was preparing to buy the European-based paid search company Espotting, a story that Espotting founder Daniel Ishag
Although Overture's shares have suffered over the past year, the company hardly needs to be rescued by Yahoo!. In February, the company forecast that revenue would grow 50% in 2003 to $1 billion.
Yahoo!'s convertible notes, issued in a private offering, essentially represent a five-year option to buy Yahoo! shares at the price of $41 each, a 68% premium to Yahoo!'s closing price Thursday night. The zero-coupon, zero-interest bonds mature in 2008, and cannot be redeemed by Yahoo! before maturity.
"We're taking advantage of historic pricing levels in the convertible debt market to lower our cost of capital and enhance our financial flexibility," Yahoo! said in a statement.