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. Last Updated: 07/27/2016

Web Giant to Purchase Ask Jeeves for $1.9Bln

SAN FRANCISCO -- Internet conglomerate IAC/InterActiveCorp on Monday said it would buy web search provider Ask Jeeves 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 and Yahoo, as well as new sector-entrant Microsoft, at a time when Internet media companies are again selling for big price tags.

"Global search is the gateway to everything," said media mogul Barry Diller, chief executive of IAC.

"It's an aggressive move by IAC," Susquehanna analyst Marianne Wolk said. "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 and event ticket site Ticketmaster, among others, Diller told a conference call.

Based on IAC's closing stock price on Friday, the deal values Ask Jeeves at $28.24 per 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 runs a web search network that is a distant fifth to those of Google, Yahoo, Time Warner's AOL and Microsoft's MSN, according to comScore qSearch.

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. Diller said paid search -- which is behind the rapid growth of Google, Yahoo and other web search shops -- was a $3.4 billion business in the United States and a $1 billion business internationally.

Wolk said IAC would have to invest significantly to improve its search engine, noting that Google, Yahoo, Microsoft and others were doing the same.

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.

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 Oakland, California-based Ask Jeeves, which closed at $24.24 on Friday, were up more than 16 percent to $28.21 in afternoon trade on the Nasdaq stock market.

Shares of several smaller Nasdaq-traded web search firms were also boosted by the deal. LookSmart stock rose 10 percent to 88 cents, up from its Friday close of 80 cents.