Overture to buy AltaVista for $140 million

Overture Services has agreed to acquire search technology company AltaVista Co. for US$140 million in cash and stock, the companies announced Tuesday.

Overture offers a service in which companies place bids to have their advertisements displayed among search results at sites operated by Yahoo Inc., Microsoft Corp.'s MSN unit and others. Buying AltaVista will help Overture to enhance those commercial services, the company said in a statement.

Overture also has its eye on the AltaVista Web site, which it will use to test out new search products and marketing services for its advertisers in a "live" setting, the company said.

Overture's statement that it will use the AltaVista site mainly as a testing grounds also serves to assuage fears that it could compete with some of the portals it partners with, said Danny Sullivan, editor of SearchEngineWatch.com.

AltaVista's search technology uses algorithms to crawl the Web and track down results for end users. The company offers "paid inclusion" services that ensure that business's Web sites are included in the results. Overture said it plans to enhance those services.

AltaVista, established in 1995, was a pioneer in Internet search technology. With headquarters in Palo Alto, California, it has about 250 employees worldwide and offers search results in 25 languages. AltaVista is a majority-owned operating company of CMGI Inc.

The company has faced increased competition from popular upstarts such as Google Inc., and in November it revamped its service with new search tools for consumers and new marketing opportunities for businesses.

But although AltaVista has been churning out updates and new features to keep itself in the game, it has waned in popularity in recent years.

Indeed, Overture's buy of the search veteran pales in comparison to some similar deals.

Subject to customary approvals and "certain other conditions," the purchase is expected to close in April and be accretive to Overture's earnings by mid-2004, the company said. The company will pay for AltaVista with Overture common stock currently valued at $80 million plus $60 million in cash.

The $140 million deal is almost $100 million less than what Yahoo paid for Inktomi Corp.'s search technology last December.

Furthermore, the acquisition comes nowhere near what CMGI Inc. paid Compaq Computer Corp. to become a majority shareholder in AltaVista in 1999. That complex financial deal, which also made Compaq a premium CMGI partner, was valued at nearly $2.3 billion.

Still, Overture's purchase trumps Ask Jeeves Inc.'s $4 million buy of the Teoma search engine in 2001, Sullivan said.

What will be interesting about the deal, said Sullivan, is to see whether Overture begins producing more balanced search results, that offer both paid and unpaid listings. If it does offer a balance, Overture would be able to sell itself as a one-stop shop for search results, Sullivan added.

Something else to watch out for, said Sullivan, is whether Microsoft Corp.'s MSN sees fit to purchase its own Web crawler.

"Who knows, [MSN] may put up a huge chunk of money to buy Google, or be content to play one provider off of another," he said.

One thing is for sure, and that is that the solid revenue opportunities presented by Internet search services have caused a lot of movement in the market in recent months.

And despite Overture's latest move to bolster its offerings, its shares (OVER) dropped 16.76 percent Wednesday, to $18.97.

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