Undeterred by the threat of a hostile takeover, slumping Internet pioneer Yahoo Inc. completed an acquisition of its own Tuesday by buying online video service Maven Networks Inc. for $160 million.
The deal marks Yahoo's latest attempt to expand its online advertising network and snap out of a two-year financial funk that has culminated in unsolicited takeover offer from Microsoft Corp.Yahoo's board rejected the bid Monday, prompting Microsoft to raise the possibility of taking its offer ??” originally valued at $44.6 billion or $31 per share ??” directly to shareholders.
The talks to buy Cambridge, Mass.-based Maven began before Microsoft announced its bid Feb. 1, said Tim Cadogan, Yahoo's senior vice president of marketing products.
Maven helps television and movie studios find Web sites to show their videos and manage the accompanying advertisements. The six-year-old startup works with a wide range of media outlets, including CBS Sports, Gannett Co., News Corp., Hearst Corp. and Sony Pictures.
Online video advertising is steadily climbing as more people watch news and entertainment online. The amount spent on Internet video ads annually is expected to triple during the next three years to $4.3 billion in 2001, estimated research firm eMarketer Inc.
"We think video is going to become the third leg of the advertising stool," said Cadogan. Ads tied to search requests is currently the Internet's biggest moneymaker, followed by so-called display ads featuring photos, illustrations and other images.
Yahoo has been discussing a search advertising partnership with the market leader, Google Inc., as a way to boost its profits and thwart Microsoft's bid. But a deal between Google and Yahoo would face significant antitrust hurdles because it would meld the two largest search advertising networks, causing more analysts to conclude an alliance is unlikely. As in search, Yahoo is trying to catch up to rival Google in Internet video. As of December, Yahoo held a 3.4 percent share of the U.S. online video market, lagging far behind Google, whose ownership of industry leader YouTube.com gave it nearly one-third of the market, according to comScore Inc.
Yahoo plans to retain Maven's roughly 70 employees even as it completes plans to lay off 1,000 workers in other divisions as part of a plan announced two days before Microsoft's bid. Employees affected by the job cuts reportedly began receiving layoff notices Tuesday. Yahoo spokeswoman Diana Wong declined to comment.
Based on a previous mid-February timeline established by management, Yahoo is expected to release additional details about the layoffs late this week or early next week. Yahoo shares fell 1 percent, or 30 cents, to $29.57 Tuesday while Microsoft shares rose 13 cents to close at $28.34.