Under the terms of the deal, Ask Jeeves will issue 9.3 million shares of common stock to Interactive Search, and another $150 million in cash. It will also pay an additional $17.5 million in cash based on the company's operating performance.
The deal is expected to close during the third quarter. Interactive Search would become a wholly owned subsidiary of Ask Jeeves.
Through the deal, Ask Jeeves is making a play for greater visibility in the search arena after several years in relative obscurity compared with search luminaries Google and Yahoo. Earlier this week, it sought to differentiate itself from Yahoo's new search engine by removing its paid-inclusion service for algorithmic search.
The Emeryville, Calif.-based company also plans to boost its odds of collecting ad revenue from search-related marketing, an industry worth an expected $4 billion in 2004. Search-related ads from Google have already buoyed Ask Jeeves' earnings over the last year. And Interactive Search owns several popular Web sites, including sweepstakes site iWon.com and portal Excite.com, which are destination sites that rely on search-related ads and pop-up advertising.
Interactive Search, headquartered in Irvington, N.Y., also owns another Yahoo rival, My Way, which touts a Web navigation environment free of pop-up and banner ads. My Way supports itself solely from keyword-search ads from Google.
Jupiter Research media analyst Nate Elliot said that the acquisition should provide Ask Jeeves with distribution for its growing ad network outside of search. The company has been building an ad network in which it sells banners, pop-ups and pop-unders. "This looks like a big improvement to the distribution of that network," said Elliot.
In total, Ask Jeeves will buy six properties, including Maxworldwide, whose collective traffic made Interactive Search the ninth most visited property online in December, according to researcher Nielsen/NetRatings. The company expects revenue of between $225 million and $235 million in 2004 as a result of the deal.
Last year, Ask Jeeves reported operating earnings of 40 cents a share, based on revenue of $107.3 million.
"This acquisition will double our market share, enhance our ability to compete in the fast-growing search market, and is expected to increase the financial returns to our shareholders," Ask Jeeves' CEO Steve Berkowitz said in a statement.
Investors seemed to like the sound of the deal. In trading Thursday, Ask Jeeves' shares closed up $8.30, or 40 percent, to $29.01.