Market Gives Overture Bronx Cheer for AltaVista Deal

Paid-search services provider Overture Services Inc. took a hammering on the market yesterday following its announcement that it plans to acquire search engine AltaVista from CMGI for $140 million in cash and stock.

The beating came despite Overture getting AltaVista at a comparative fire sale price. In 1999, Compaq agreed to transfer 83 percent of AltaVista to CMGI for $2.3 billion worth of CMGI common stock, giving AltaVista a total value of $2.7 billion. Shares of CMGI were trading at more than $100 at the time. CMGI shares yesterday rose more than 10 percent on news of the deal but still traded at less than $1.

Shares of Overture, which pioneered paid search as, dropped more than 20 percent to around $18, reportedly in part because some worry the deal could bother some of Overture’s partners who previously hadn’t considered the company a competitor in the non-paid search market.

For example, Overture provides Yahoo with paid links in the first four slots of its search results pages. Advertisers bid on those links, which are labeled “sponsored matches,” to get top ranking. Advertisers pay per click for these listings. Overture shares revenue with Yahoo for featuring them.

Non-sponsored search results are also labeled as such and are featured under the sponsored ones.

With AltaVista’s algorithmic search technology, Overture will be able to pursue complete search deals instead of offering just paid listings. After entering the paid-search market nearly a year ago, Google quickly became the leader and lured away Overture partners EarthLink, Ask Jeeves and AOL.

Overture said it also will license the technology to its customers, including Yahoo and MSN. However, this announcement follows Yahoo’s recent acquisition of Inktomi, whose technology rivals that of AltaVista’s.

Overture also said it will use AltaVista to test new search services and marketing products for its advertisers.

Overture at deadline had not returned a call for comment.

The Overture-CMGI agreement calls for Overture to pay $80 million in stock and $60 million in cash. CMGI owns the majority of AltaVista, Palo Alto, CA. Overture, Pasadena, CA, reported having $250 million in cash at the end of 2002. The deal is to close in April.

In other search engine news, Google has bought a company that helped popularize blogs, informal online journals that increasingly are a popular online alternative to mainstream news sites. Financial terms were not disclosed.

Google reportedly reached the deal to buy Pyra Labs, San Francisco, and its Web site last week. Google officials said they are not ready to discuss their plans for the company.

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