February 18, 2003 3:32 PM PST

Overture to buy AltaVista

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Overture Services plans to acquire search technology company AltaVista for $140 million in cash and stock, the latest sign of consolidation in the resurgent search business.

Pasadena, Calif.-based Overture, which auctions placement in search results to advertisers, said Tuesday that it plans to bolster its commercial service with AltaVista's technology. Palo Alto, Calif.-based AltaVista, which is majority owned by CMGI, develops technology that crawls the Web and returns relevant search results in response to users' queries.

Overture plans to license the technology to its customers, which include Yahoo, MSN and AOL Europe. Overture also will use AltaVista.com to test new search services and marketing products for its advertisers.

"We, as many observers know, have been looking at whether and how to add algorithmic search to our arsenal over the last year," said Ted Meisel, Overture president and CEO. "Algorithmic search is a highly engineered product...this was the right time and right product."

"It was time to bring the technology in-house so we could provide a complete solution to partners," he said.

Overture will pay AltaVista in common stock currently valued at $80 million, plus $60 million in cash; and it will assume certain of AltaVista's liabilities. The company said that it would not change its financial guidance for the first quarter of 2003. The purchase is expected to close in April and will be accretive to Overture's earnings by mid-2004.

AltaVista CEO James Barnett will remain at his post, answering to Overture executive vice president Alex Cory, who will head up the business.

The announced buyout follows Yahoo's proposed $235 million acquisition of Inktomi, whose technology rivals that of AltaVista's. Yahoo, Overture and major search providers have seized on Web search as a key area for growth in online advertising in the coming year. To drive consumer demand for their services--and clicks on paid listings--Yahoo and Overture are focused on providing the fastest, most relevant Web search results to rival those of Internet darling Google.

Overture currently enhances its paid-search listings with algorithmic search results from Inktomi--listings it calls "backfill." By acquiring AltaVista, it can replace Inktomi and make algorithmic search a marquee product for sale to partners. The company said it plans to syndicate the algorithmic search service and will look to collaborate with the likes of Yahoo and others for Web search, despite Yahoo's proposed acquisition of Inktomi.

In a conference call to investors, Meisel said that AltaVista would open additional revenue streams for Overture. With AltaVista, Overture plans to build on its pay-per-click advertising by giving marketers the option to participate in AltaVista's "paid-inclusion" program. Paid inclusion allows marketers to pay to have their Web site addresses listed more frequently in AltaVista's index.

For AltaVista, a buyout is likely a godsend. Since the dot-com bust, the company has struggled to recapture its former glory as a search-engine heavyweight. In the last year, the company has redesigned its Web site and played up its paid inclusion program to offset a decline in advertising sales.

 

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