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NEW YORK (AdAge.com) -- Internet giant Yahoo! will acquire the search engine advertising company Overture Services for $1.63 billion
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The deal, which is expected to close by year-end, calls for shares of Overture stock to be exchanged for a 0.6108 share of Yahoo and $4.75 in cash, valuing each share of Overture at $24.63, about a 15% premium over Overture's July 11 closing price.
Overture CEO Ted Meisel will report to Yahoo!'s chief operating officer, Dan Rosensweig, overseeing the business.
Competing against Google, MSN
The move is expected to enhance Yahoo!'s ability to compete with search engine leader Google and Microsoft Corp.'s MSN, which has quietly been developing its own search engine capabilities.
Overture is a specialist in search engine-based advertising systems that directly respond to each Web visitor's specific search. The process has proven potent because of its ability to constantly expose consumers to online product and service ads directly relevant to their interests at that moment, predicated by their search.
Yahoo! has aggressively stepped up its search-related business in recent months, having acquired Inktomi, a Google rival, and supporting the feature with national ad campaigns by Havas' Black Rocket Euro RSCG, San Francisco. The Overture acquisition will enable Yahoo! to grow its search-based advertising business across its network.
19% of revenues from search
In an interview with AdAge.com, Mr. Rosensweig said all search-related services accounted for 19% of Yahoo!'s revenues for the first quarter and will continue to grow as the industry's and Yahoo!'s fastest-growing business segment.
Wenda Millard, the company's ad sales chief, said large advertisers are purchasing ad packages and search is a significant component.
The company's statement also indicated the acquisition is expected to help Yahoo! target small business and European and Asian advertising markets.
Overall, search-based advertising is one of the fastest-growing segments of the Internet advertising sector. It is expected to account for $2 billion in revenue by year-end and grow to $5 billion by 2006, according to research by investment firm U.S. Bancorp Piper Jaffray.