February 25, 2003 7:20 AM PST

Overture to buy search services

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Overture Services plans to acquire some services of Fast Search & Transfer, another sign that it intends to compete more intensely for the Internet search market.

Overture will pay Oslo, Norway-based Fast $70 million in cash, as well as a performance-based incentive of up to $30 million over three years. The deal, announced Tuesday, is expected to close by April.

The acquisition, combined with the recent purchase of search engine AltaVista, is designed to help Overture "create the most powerful and comprehensive search capability on the Internet," the company said in a release.

Pasadena, Calif.-based Overture made its name selling placement within search results to advertisers. AltaVista and Fast use search engines to crawl the Web and return relevant results in response to queries. Overture said it would offer its distribution affiliates combinations of Overture's paid-placement product, a paid-inclusion product and algorithmic search.

Fast makes real-time search and filter technology. The company will retain usage rights for intellectual property related to its enterprise search technologies.

AltaVista's and Fast's paid inclusion businesses and engineering teams will begin integrating immediately after the acquisitions close, and a common paid-inclusion product and technology team should be set up by the end of 2003.

Overture said it will use Fast's AlltheWeb.com to experiment with advanced approaches in search and will use the AltaVista.com site to refine implementations for new products and improve presentation to consumers.

The company will spend between $13 million and $15 million in 2003 on its Web search product line, excluding acquisition costs, Overture said in a release. Overture has also named Gary Flake as chief science officer to oversee research and development efforts. Before joining Overture, Flake served as a research scientist at the NEC Research Institute and as the leader of its Web data-mining program.

Overture also announced Tuesday that it will offer new features, such as local search and contextual advertising, which it had been researching for several months. Overture plans to spend $10 million to $12 million on those products during 2003 and expects them to approach break-even in 2004.

The acquisition of Fast and AltaVista will force Overture to take a charge of 20 cents to 21 cents in fiscal 2003, the company said. But the acquisitions should add to the bottom line by mid-2004 and, "at a minimum," be neutral to earnings for the full year 2004, Overture said.

On a combined basis, revenue for Fast and AltaVista was around $60 million for 2002. Excluding the payments Overture would have made to AltaVista and Fast as independent companies, the companies are expected to add sales of about $25 million to $30 million in the last three quarters of 2003 and about $100 million to $125 million in 2004, Overture said.

Overture updated its financial expectations based on the acquisitions. For 2003, the company now expects to see revenue of more than $1 billion and earnings per share of 60 cents to 70 cents. Analysts had been expecting the company to report earnings of 91 cents per share on revenue of $1.03 billion.

Overture said the Fast deal should also help it boost its presence overseas. Fast already has relationships with some of Overture's Web partners in the United States and abroad, including Terra Lycos, InfoSpace, T-Online and Freeserve.

"We think that the opportunity overseas is significant. We have been able to do very well in Europe, Asia and Japan, in particular. So there, for example, Fast reinforces our position in Europe," Overture CEO Ted Meisel said on a conference call.

The search market has become more competitive recently, even as it consolidates. Although Google can lay claim to the bulk of the consumer business, companies including Overture and Yahoo have taken a much greater interest in the advertising that accompanies search results. Yahoo recently acquired Inktomi in a deal worth up to $235 million.

"We have seen opportunities come and go that we would have like to have won," Meisel said. "We didn't have the full search solutions our partners were looking for. There have been a few in the U.S., a few overseas as well."

 

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