Seeking to solidify its position as the major performance pricing-based online ad server, ValueClick said Monday it would buy affiliate marketing technology player Be Free in an $128 million all-stock deal.

Under the terms of the deal, each Be Free common share will be converted into 0.65882 shares of ValueClick stock. When the merger is completed, Be Free's stockholders will own about 45 percent of the combined company's outstanding shares.

Following the merger, Be Free, based in Marlborough, Mass., will become a subsidiary of ValueClick. The merged firm will continue to be headed by ValueClick chief executive and chairman James Zarley, with three of ValueClick's seven board of directors members coming from the smaller firm. The rest will come from ValueClick and DoubleClick, which maintains a minority stake in ValueClick.

Post-merger, the enlarged ValueClick will keep its headquarter in Westlake Village, Calif., and will have about $270 million in cash and securities. ValueClick also gave 2002 revenue guidance of $83 million for the merged company, in line with ValueClick's and Be Free's $60 million and $23 million respective guidance.

Through "cost efficiencies and operational synergies," ValueClick said it believes it can reach breakeven (before charges) by fourth quarter, and save $6 million per year beginning in the middle of 2003 from "cost reduction activities." Specific moves were not announced.

The pickup, ValueClick's fifth in two years, is expected to close by the end of the second quarter, pending regulatory and shareholder approval.

The merger aims to consolidate ValueClick's predominately cost-per-click and cost-per-action ad network and its ad serving technology practices with Be Free's own affiliate marketing products and services. Since online affiliate marketing is typically based on cost-per-click or cost-per action models, the purchase would seem to make a perfect match.

The move marks another step in ValueClick's efforts to steadily expand from its core practice of cost-per-click online media sales. In 2000, the company acquired a logfile analysis firm, a co-registration play, and a rival performance-based online ad network. Last year, ValueClick snapped up MediaPlex, a provider of online ad serving technology (which competed with its own Dynamo ad server) and agency software.

"Our goal is to continue to add products and services that Fortune 500 firms are seeking in addition to those they already receive from ValueClick," Zarley said. "Be Free is a great fit with that plan."

Furthermore, ValueClick lands several prominent clients through the transaction, including barnesandnoble.com, Travelocity.com, Sony Corp. of America, IBM, CitiGroup's CitiFinancial, and gap.com.

"With this merger, ValueClick and Be Free gain the critical mass needed to substantially increase market share and build on our vision of a shared marketing platform," said Be Free chairman and CEO Gordon Hoffstein, who will assume a post on ValueClick's board following the merger.