Yahoo! snaps up Overture for $1.63bn

Yahoo! is set to buy search firm Overture Services in a $1.63bn deal in a move squarely aimed at taking on competitors in the search engine market. The deal calls for each share of Overture stock to be exchanged for 0.6108 share of Yahoo! and $4.75 in cash. This values each Overture share at $24.63, roughly a 15 per cent premium over its closing price on Friday.

Yahoo! said the deal will allow it to expand its pay-for-performance search business and expand contextual advertising throughout its network. Overture specialises in selling advertising links that accompany search results on sites like Yahoo! and MSN.

Yahoo! has also been getting more competitive about search, recently acquiring Inktomi, an algorithmic search company that competes more directly with Google.

Search is a key element in Yahoo!'s advertising business, which, while growing, is not quite meeting analysts' expectations. The company's earlier partnership with Overture accounted for nearly one-fifth, of Yahoo!'s overall first-quarter revenue, the company recently reported.

Overture CEO Ted Meisel said in a statement: "Overture pioneered commercial search, and we believe there remains huge upside potential in this market." Meisel will continue to oversee Overture operations, and will report to Yahoo! chief operating officer Dan Rosensweig.

In a conference call Yahoo! cited the increasing opportunity to target small-business customers and to tap into foreign advertising markets, in Europe and Asia specifically, as a key impetus for the acquisition. Yahoo! officials said the deal made more sense than attempting to separately build holdings comparable to those of Overture, based on that company's standing in the paid-search business and the time required.

The deal is expected to be completed by the fourth quarter of the year.

Margaret Kane writes for CNET News.com