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IAC to Buy Ask Jeeves for $1.85B

UPDATED: IAC/InterActiveCorp agreed to acquire Ask Jeeves for $1.85 billion in stock in a blockbuster search engine deal that solidifies the e-commerce player's footing in the online advertising and search market.

One of the largest generators of online advertising, Ask Jeeves counts roughly 42 million U.S. users per month, making it an attractive target for a company that wants to become a major player in Internet advertising.

Barry Diller, chairman and CEO of IAC, said the move will position the company to become a prime player in the Web search market. He said the continued growth in the online advertising market was a major incentive in making the acquisition.

"We believe that in the future, Ask Jeeves has the potential to become one of the great brands on the Internet and beyond," Diller said in a teleconference. "And by 'beyond,' we mean in wireless [and] in the search for anything on any device."

Should the purchase succeed, it will put IAC squarely in competition with Google, Yahoo and Microsoft, all of whom are vying for as big a piece of the growing search pie as they can get.

According to Merrill Lynch Equity Research, companies spent $10 billion in online advertising in 2004 is online, but the sector is expected to grow 13 percent a year. Also, search is now 36 percent of U.S. online advertising and is expected to grow 24 percent per year over the next five years.

Diller also said his company would "integrate offers from leading brands to create compelling results for users" and would "continue to invest our unique experience" in Ask Jeeves.

Ask Jeeves will remain an independent brand with operations in Oakland, Calif., following completion of the acquisition late in the second quarter. Steve Berkowitz will continue as Ask Jeeves' CEO. Following the spin-off, Ask Jeeves will remain part of IAC.

Berkowitz said the acquisition would help Ask Jeeves "realize our full potential" while creating a stronger competitive and powerful force in the search market.

"We felt constrained being a standalone public company," Berkowitz said during the conference call. "We are extremely excited to work in this innovative environment."

IAC will issue 1.2668 shares of common stock for each share of Ask Jeeves common stock in the tax-free deal. IAC plans to then buy back at least 60 percent of the shares it will issue for the purchase to offset a large portion of the dilution from the transaction with cash.

Tim Gray contributed to this report.