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Yahoo! Stalked Overture for Over a Year

Posted on: Tuesday, 12 August 2003, 06:00 CDT

By MICHAEL LIEDTKE

SAN FRANCISCO (AP) -- Internet giant Yahoo! Inc. so prized Overture Services Inc. that it stalked the online search engine for more than a year, overcoming early resistance to prevail with a takeover offer, according to documents filed Monday.

The anatomy of the deal was contained in a shareholder prospectus, which provided new financial details about the deal including revised calculations that value Yahoo's cash-and-stock purchase at $1.7 billion, up from $1.63 billion when the agreement was announced a month ago.

The acquisition of Overture, whose patented method for displaying advertisements relevant to online search requests had made it a moneymaking machine, was Yahoo's biggest since the Internet bust of early 2000.

Yahoo lost $92.8 million in 2001 but has since rebounded, with Overture's advertising system playing a pivotal role. The advertising links from Overture's index generate about 20 percent of Yahoo's revenue.

Yahoo began using Overture's links in its search engine in November 2001. Just six months later, Yahoo CEO Terry Semel began discussing a possible takeover with Overture CEO Ted Meisel, according to Monday's prospectus, which said the talks continued over the next several months, prompting Yahoo to submit a bid in November 2002.

In early February, Overture called off the negotiations and instead pursued its own acquisitions, paying $207 million for search engines AltaVista, AlltheWeb.com and other Internet assets.

In late May, shortly after Overture lowered its profit projections for this year, Semel contacted Meisel to renew the takeover talks, the prospectus said. With Overture's stock slumping badly, this time the discussions yielded a deal.

The shareholder prospectus revealed that Yahoo held a bargaining chip that might have made it difficult for Overture to negotiate with other potential suitors, including Microsoft's MSN.com, another site that displays ad links from Overture.

If Overture had been sold to another company, Yahoo could have dropped Overture's links from its popular site and demanded a termination payment of $5 million to $10 million in addition to 2 percent to 3 percent of Overture's stock, according to the prospectus.

After Yahoo takes control of Overture, MSN can cancel its contract with Overture, the prospectus said. The documents don't mention whether Overture could be forced to pay Microsoft a termination fee similar to the arrangement with Yahoo.

Microsoft has indicated it will reassess its relationship with Overture after the Yahoo deal is done.

As part of the takeover, Yahoo agreed to retain Meisel as a senior vice president - a position that will pay him more than he earned as Overture's CEO. Meisel, 39, will receive a $375,000 salary, up from his Overture salary of $290,000 last year, according to shareholder disclosures.

Yahoo also intends to give Meisel 80,000 shares of the company's stock if he remains in his new job for three years. The shares are worth $2.3 million, based on Yahoo's Monday closing price of $28.90 on the Nasdaq Stock Market.

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On the Net:

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