Yahoo! buys Overture Services

SAN FRANCISCO — Yahoo! Inc. on Monday snapped up Overture Services Inc., the pioneer of pay-for-placement online search results, in a $1.6 billion deal that fortifies the Internet powerhouse for a looming showdown with Google and Microsoft.

The cash-and-stock acquisition valued Overture at $24.82 per share — a 15 percent premium over the stock's closing price last week. The price consists of $312 million in cash and 0.6108 Yahoo! shares for each of Overture's 65.7 million outstanding shares.

The deal's value will fluctuate with Yahoo's stock until its expected closing date in the fourth quarter.

Overture's shares rose $2.54 to close at $24.05 Monday on the Nasdaq Stock Market, where Yahoo's shares gained 1 cent to close at $32.20.

The acquisition continues a recent flurry of dealmaking in the lucrative business of online searching, a crucial axis on which much of the Internet's utility depends.

By buying Overture, based in Pasadena, Calif., Yahoo! gains control of one of its most important business partners and strikes a blow against Google and Microsoft.

A fierce rival of Google, which offers ad-based results distinct from its popularity-based search rankings, Overture now threatens to become more formidable by tapping into Yahoo's greater resources, which included $1.1 billion in cash as of June 30.

Privately held Google, which provides some search results to Yahoo!, declined to comment on Monday's deal. Microsoft, whose MSN service, like Yahoo!, has been collecting steady profits from Overture, was circumspect.

Lisa Gurry, MSN's group product manager, said the software giant will make its next move after examining how Yahoo's deal might affect its relationship with Overture.

Although Yahoo! executives said they hope to maintain Overture's existing alliances with partners such as MSN, it seems improbable that the rivals will want to subsidize each other, said Danny Sullivan, editor of the industry newsletter Search Engine Watch.

"This hurts MSN because Overture had been one of its best buddies," Sullivan said.

MSN has been pouring more resources into online searching in an effort to become less reliant on services provided by outsiders. Besides relying on Overture for some of its search results, MSN also draws upon Inktomi, a search engine service that Yahoo! acquired earlier this year for $279.5 million.