Yahoo to Buy Software Maker

Yahoo Inc. said Monday that it would pay $235 million to buy Internet search-software maker Inktomi Corp., strengthening its position in the growing Web search business.

The cash deal of $1.65 a share valued Inktomi, a highflier during the Internet boom, at a 41% premium to Friday’s close but at less than a third of its value at its 1998 initial public offering – and at a fraction of its peak share price of $241 in 2000.

By acquiring Inktomi and its paid-search capabilities, which generate advertising income, Sunnyvale, Calif.-based Yahoo also lessens its reliance on Google, a privately held company that provides search functions to Yahoo but also has positioned itself as an up-and-coming competitor, analysts said.

Shares of Foster City, Calif.-based Inktomi soared 43 cents, or 37%, to $1.60. Yahoo rose 65 cents, or 3.8%, to $17.73. Both trade on Nasdaq.

The takeover announcement helped push other technology stocks higher as it generated hope among investors for further consolidation in software and other industries that have seen sales shrink in the wake of the collapse of the Internet bubble.

Inktomi’s search business features a paid-inclusion model that allows businesses to pay for a prominent listing in the results for specific searches. This practice has surged in popularity this year as a low-cost alternative to more expensive forms of Web advertising.

“The paid-inclusion model is really icing on the cake. That alone really justifies the price of the transaction,” Yahoo Chief Financial Officer Sue Decker said.

Yahoo said it expected the acquisition to increase its earnings per share within a year of closing. The deal is expected to close in the first quarter of 2003, subject to approval by regulators and Inktomi stockholders.