Ask Jeeves sold for $1.85 billion

SAN FRANCISCO (Reuters) - Internet conglomerate IAC/InterActiveCorp has said it will buy Web search provider Ask Jeeves for $1.85 billion (975 million pounds) in an effort to knit together its diverse holdings and profit from search advertising, one of the fastest growing businesses on the Web.
The purchase will pit IAC against well capitalised Web search giants Google and Yahoo as well as new sector entrant Microsoft.

"Global search is the gateway to everything," said media mogul Barry Diller, chairman and chief executive of IAC, calling it a multibillion dollar industry growing at double-digit rates.

IAC, which plans a spin-off of its Expedia and other travel-related businesses in the second quarter, said it will integrate the Ask Jeeves search box and its Web search results on all of its sites, including the Home Shopping Network, event ticket site Ticketmaster, online dating site Match.com and online mortgage provider LendingTree, as well as Expedia.

Known for its cartoon butler and early strategy of encouraging Web searchers to enter queries in the form of questions, Ask Jeeves runs a Web search network that is a distant fifth to those of Google, Yahoo, Time Warner's AOL, and Microsoft's MSN.

The most obvious benefit to IAC of the purchase will be a boost to IAC's Citysearch local advertising business.

Web search companies like Yahoo and Google have been investing heavily in local search in the hope of building new businesses with neighborhood businesses like restaurants.

Piper Jaffray analyst Safa Rashtchy said IAC's purchase of Ask Jeeves could be the glue that finally binds IAC's myriad companies together.

Yahoo, in particular, is known for its strategy to keep users and their expenditures on its site by offering one-stop shopping for everything from e-mail to job hunting.

GOOD BUY?

Analysts said IAC would be picking up Ask Jeeves for slightly less than what they consider the independent Web search provider to be worth at a time when Internet media companies are again fetching high price tags.

The deal values Ask Jeeves at about 15 times cash flow, a discount to its larger rivals such as Google and Yahoo whose price to cash flow ratios are roughly 23, said Youssef Squali, an analyst at Jefferies & Co.

"It's an aggressive move by IAC," said Susquehanna analyst Marianne Wolk. "We think they'll face many challenges."

Ask Jeeves reaps nearly three-fourths of its revenue, which totaled $261.3 million in 2004, from a paid-search advertising relationship with Google that runs through 2007. Ask Jeeves roughly doubled in size last year with its acquisition of Interactive Search Holdings for $501 million.

IAC will issue 1.2668 shares 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.