| SAN FRANCISCO
SAN FRANCISCO Yahoo Inc. said it would buy the rest of Right Media Inc. for about $680 million, in a move to boost the reach of Yahoo's advertising to social network sites, which marketers have struggled to reach.
Yahoo took a 20 percent stake last October in privately held, New York-based Right Media, which was founded in 2003.
Right Media focuses on direct marketing advertising, delivering high-volume ads to mass-market audiences such as MySpace users. It averages 4 billion daily ad impressions.
It complements Yahoo's focus on the premium ad market, where blue chip advertisers are offered guaranteed ad placement and precise demographic targeting, and its pay-per-click Web search business, where it is No. 2 behind Google Inc.
"I think this is kind of the third leg of the stool," Yahoo Chairman and Chief Executive Terry Semel told investors on a conference call on Monday following the announcement.
Shareholders of Right Media would be paid in roughly equal parts cash and stock, and employee stock options and other equity awards would be assumed by Yahoo, Yahoo said on Monday.
The deal is expected to close in the second or third quarter.
Analysts said the deal appears pricey in valuation terms but strategic in helping Yahoo shore up its display advertising business at a time when its premium ad business has been slowing. Shares dipped 2 cents to $28.32 in Nasdaq trade.
"The display advertising market is going through a significant transition," a Yahoo executive said, referring to how the non-premium market where Right Media is operating is gaining market share from the premium end of the online ad market.
The price Yahoo paid for its 20 percent of Right Media stake in October valued the firm at a total of about $200 million. The eventual acquisition of the firm would value it about $850 million in total, Citigroup analyst Mark Mahaney said.
Chief Financial Officer Susan Decker responded to an analyst's question about the jump in valuation for Right Media over the past six months by arguing that Yahoo's initial investment had valued the company only as a partner.
Acquiring the firm entirely could help accelerate Yahoo's overall advertising business, justifying the terms, she said.
The Right Media Exchange is the industry's largest online advertising exchange, serving up banner ads and other ad formats to less-trafficked parts of Web sites than traditional premium ad networks, which target busy Web sites.
Yahoo, the market leader in display advertising used by big brand-name marketers, is seeking to boost its presence in the fast-growing market for advertising that can be targeted to small audiences such as individual social network profiles.
The move comes as Yahoo seeks to fend off rival Google Inc., the world leader in delivering pay-per-click advertisements that run alongside Web search results, after Google's recent deal to acquire premium ad network DoubleClick for $3.1 billion.
DoubleClick, which focused on the premium end of the ad market which Yahoo leads, recently announced plans to create an ad exchange. Advertising exchanges work like electronic stock markets to connect buyers and sellers of ads more efficiently.
Right Media bolsters Yahoo's capacity to help advertisers reach customers both on the Internet at large as well as on Yahoo's own growing number of social-network properties. These include Yahoo Answers, where site users answer one another's questions, and its Flickr photo-sharing site.
Right Media has attracted around 20,000 advertisers, publishers and networks to its online advertising exchange. In addition to the exchange, the company also operates an ad network, selling advertisements on behalf of 1,000 customers.
It counts around 200 employees and is expected to generate around $70 million in revenue this year, Decker said.
Right Media should break even on a cash flow basis by the end of this year. On a free cash flow basis, including acquisition costs, Yahoo expects Right Media to be profitable 12 months after the deal closes, Decker said.
Yahoo said it plans to increase its participation in the exchange as both a buyer and seller to increase the liquidity of Right Media as an advertising media marketplace.
Venture capital firm RedPoint Ventures of Menlo Park, California, is another outside investor in Right Media.
(Additional reporting by Paritosh Bansal in New York)