Ask Jeeves rekindles merger talk

PALO ALTO, California: A pair of announcements from Ask Jeeves Inc. stirred simmering speculation that the Web-search space could see more consolidation after a burst of deals between November and March. But while rumors persist about some of the Web-search sector's bigger players, many industry watchers do not see any mega-mergers in the near future.

"Major consolidation is finished," said Yankee Group senior analyst Rob Lancaster, who recently published a report on Web-search mergers. Emeryville, California-based Ask Jeeves -- operator of the Ask.com and Teoma.com Internet search sites -- on Wednesday said it would sell its enterprise search division and use proceeds from an upcoming $100 million debt offering for "general corporate purposes which might include potential acquisitions and investments."

Word that Ask Jeeves intended to fortify its war chest came about a month after Yahoo Inc. sold $750 million in senior convertible notes. While Yahoo was not specific about what it would do with the money raised from its offering, its announcement re-ignited speculation that big deals were in the hopper. "There certainly hasn't been a lot of evidence to suggest that deals are popping like popcorn right now," Pacific Growth analyst Derek Brown said.

BUYER AND SELLER SHORTAGE

One problem, industry watchers noted, is that there are not many big buyers or sellers remaining after the string of market-changing acquisitions that unfolded from winter through spring.

During that time, Pasadena, California-based Overture Services Inc., spent about $180 million to buy search engines from U.S.-based AltaVista and Fast Search & Transfer of Norway.

Yahoo, which is again embracing its Web-search roots, bought Inktomi's Web search business for $235 million. Privately held Google, seen as the leader in the commercial search market, also has been expanding its reach with purchases that back up its push into Web logs and content-based advertising.

Lancaster and others have said big buyers would most likely be limited to Microsoft Corp.'s MSN Internet services division, AOL Time Warner Inc's AOL, and Yahoo.

"Google is only an acquiree if it remains private and if Microsoft becomes very serious about this space. If Google becomes public it will continue to be an acquirer," Lancaster said. Yahoo just gobbled up Inktomi, so it may not have an appetite for another big purchase, and AOL has a lot on its plate, industry analysts said.

Weighed down by billions in debt from the now-unhappy merger that gave birth to the world's biggest media company, AOL is the subject of federal probes into the accounting practices of its online division, which also may be spun out.

Overture's relatively low stock price fuels a persistent rumor that it will be bought by Yahoo. On Wednesday, Yahoo's market value of $18 billion dwarfed Overture's market cap of $1 billion. An Overture spokesman said the company does not comment on rumors.

Overture may be cheap at current levels, but it is integrating two large acquisitions and its revenues depend on business with key partners like Yahoo and MSN, analysts said. So what's left?

Lancaster said potential acquisition targets include Ask Jeeves and San Francisco-based LookSmart Ltd., which is known for its paid-inclusion services that allow Web site operators to pay to have more of their pages searched by web engines.

© Reuters