Internet conglomerate IAC/InterActiveCorp Monday said it would buy Web search provider Ask Jeeves Inc. for $1.85 billion in stock in an effort to capitalize on explosive growth in the Internet advertising and search markets.
The purchase will pit IAC against well capitalized Web search giants Google Inc. and Yahoo Inc. as well as new sector entrant Microsoft Corp. at a time when Internet media companies are again selling for big price tags. (MSNBC is a Microsoft-NBC joint venture.)
“Global search is the gateway to everything,” said media mogul Barry Diller, chief executive of IAC.
“It’s an aggressive move by IAC,” said Susquehanna analyst Marianne Wolk. “We think they’ll face many challenges.”
IAC will integrate the Ask Jeeves search box and its Web search results on all of its IAC-owned sites, which include the Home Shopping Network, event ticket site Ticketmaster, online dating site Match.com, online mortgage provider LendingTree, and local business information provider CitySearch, Diller told a conference call.
Based on IAC’s closing stock price on Friday, the deal values Ask Jeeves at $28.24 a share, a premium of 17 percent to its Friday closing price.
Ask Jeeves would be one in a stream of acquisitions for IAC, which earlier this month said it would buy catalog and online retailer Cornerstone Brands for $720 million to expand across multiple retail outlets.
Ask Jeeves, known for its cartoon butler and early strategy of encouraging Web searchers to enter queries in the form of questions, runs a Web search network that is a distant fifth to those of Google, Yahoo, Time Warner Inc.’s AOL, and Microsoft’s MSN, according to comScore qSearch.
Ask Jeeves reaps nearly three-fourths of its revenue, which totaled $261.3 in 2004, from a paid-search advertising relationship with Google that runs through 2007. The company roughly doubled in size last year with its acquisition of Interactive Search Holdings for $501 million.
Diller said paid search — which is behind the rapid growth of Google, Yahoo and other Web search shops — is a $3.4 billion business in the United States and a $1 billion business internationally.
At home and abroad, Web search advertising growth is rising at double-digit rates, with no signs of abating, said Diller.
Susquehanna’s Wolk said IAC would have invest significantly to improve its search engine, noting that Google, Yahoo, Microsoft and others are doing the same.
The deal values Ask Jeeves at about 15 times cashflow, a discount to its larger rivals such as Google and Yahoo whose price to cashflow ratios are roughly 23, said Youssef Squali, an analyst Jefferies & Co.
IAC will issue 1.2668 shares of its stock for each Ask Jeeves share and then buy back at least 60 percent of the shares it issues to partially offset the dilutive effect of the deal.
Shares of several smaller Nasdaq-traded Web-search firms were also boosted by the deal. LookSmart Ltd. stock rose 10 percent to 88 cents, up from its Friday close of 80 cents.
Shares of Mamma.com traded up more than 7.5 percent at $3.51, while FindWhat.com shares traded up nearly 6 percent to $10.43.
Separately, IAC said it had agreed to sell for $204 million its 48 percent interest in Euvia Media, which operates two television broadcasting businesses in Germany. The buyer is ProSiebenSat.1 Media AG, a television group that also holds a 48 percent stake in Euvia.
