Ask Jeeves buys Interactive Search

Ask Jeeves Inc. announced Thursday that it will buy privately owned Interactive Search Holdings Inc. (ISH) for about $343 million in a move the Emeryville, Calif.-based company expects will double its search market share.

Under the terms of the agreement, Ask Jeeves will issue 9.3 million shares of common stock and options and pay $150 million in cash for Irvington, N.Y.-based ISH. In addition, Ask Jeeves may pay up to an additional $17.5 million in cash based on various factors, including ISH's operating performance.

"This acquisition will enable us to combine Ask Jeeves' proven strengths in user experience, search technology and brand development with Interactive Search Holdings' strengths in distribution and direct marketing," said Ask Jeeves CEO Steve Berkowitz in a conference call with media and analysts.

ISH properties and brands include My Way, My Search, My Web Search, Excite, iWon, the advertising network MaxOnline and Focus Interactive Inc. Berkowitz said that ISH currently employees about 200 people and that while it has international visitors, it has no international presence. In December, ISH's Web properties reached 17% of U.S. Internet users, Berkowitz said.

The deal is expected to close sometime prior to the end of the second quarter, at which time ISH will become a wholly owned subsidiary of Ask Jeeves, though its operations will remain in Irvington, Berkowitz said.

According to the Ask Jeeves CEO, the combination of Ask Jeeves with ISH will give the company a 7% share of the Web search market, up from 3.5%.

"We are currently very, very customer-focused," Berkowitz said. "We believe that people like to access information in different ways, and we don't believe that Ask Jeeves has the answer to search for everyone." Products such as My Way and My Web Search will give Ask Jeeves the ability to offer consumers more choice, he added.

The acquisition of ISH will also allow Ask Jeeves to extend the reach of its Teoma search engine, Berkowitz said. Ask Jeeves says Teoma's "Subject-Specific Popularity" differentiates the search engine from its rivals because Teoma displays communities on the Web and can represent a group of pages on or about the same subject.

Ask Jeeves is the seventh most-used search engine worldwide, with a 1.6% market share, according to estimates by Web analytics company OneStat.com NV released last November. That's well behind Ask Jeeves' search-engine rivals Google Inc., which had a 56% share, and Yahoo Inc., which had a 21.5% market share, according to Amsterdam-based OneStat.com.

On its Web site, ISH promotes itself as a leading provider of Google-sponsored listings, though Berkowitz declined to comment on how Ask Jeeves' acquisition of the company would affect its relationship with Google. "All we can say about that is that [ISH's] contract is longer than our contract with Google, which ends in 2005." Ask Jeeves derives 67% of its revenue from Google, Berkowitz said.

Ask Jeeves also raised its stand-alone earnings and revenue projections for the first quarter and full year on Thursday. The company now expects operating earnings of 18 cents per share on revenue of $37 million. In January, it projected operating earnings of 16 cents per share and revenue of $35 million. It expects revenue for the full year to come in at $148 million, up from its earlier projection of $142 million.

Thomson Financial/First Call in Boston currently puts its estimates for Ask Jeeves first-quarter operating earnings at 16 cents per share, with revenue of $35.3 million.

Once it acquires ISH, combined company 2004 operating earnings are expected to be 85 to 90 cents per share on revenue of $220 million to $230 million, Ask Jeeves Chief Financial Officer Steve Sordello said during the conference call.

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