NEW YORK (CNNfn) - Leading Web portal Yahoo! agreed Wednesday to pay $432 million in stock to acquire eGroups Inc., an e-mail group communication service that unites people who share a common interest.|
Under terms of the agreement, Yahoo! (YHOO: Research, Estimates) will issue approximately 3.4 million shares of its common stock for all the securities of the privately held eGroups. Yahoo! expects to record a third-quarter one-time charge for costs related to the deal, which will be completed in the third quarter and will be accounted for as a pooling of interests.
"The ability to create, manage and join e-mail groups is something our users have been asking for, and this acquisition delivers this capability to them easily and rapidly," said Yahoo!'s president and chief operating officer, Jeff Mallett. "In addition to an established global presence, eGroups has amassed 17 million loyal members who have created more than 800,000 active e-mail groups."
News of the acquisition had little impact on Yahoo!'s stock, which drifted 11/16 lower to 125-1/4 in late afternoon trading.
Yahoo! aims to integrate eGroups' service with Yahoo!'s various forms of mail and messaging, which handled more than 3.6 billion messages in March.
A bonanza for employees
The audience measurement service Media Metrix ranked the eGroups Web site No. 13 among Web services companies in May. eGroups, based in San Francisco and Redwood City, Calif., is funded by the Internet incubator company CMGI (CMGI: Research, Estimates) and a group of venture capital firms, including Sequoia Capital, Atlas Venture, Bertelsmann Ventures and Bank of America Ventures.
In March, CMGI said that it planned to take eGroups public later in the year. Since then, the IPO market for consumer-oriented Web companies has come to a virtual halt, apparently making the sale of the company to Yahoo! a more attractive option.
The transaction is a bonanza for eGroups' 150 employees, all of whom own stock in the company. eGroups' 29-year-old CEO, Michael Klein, owns about 5 percent of the company, making him almost $22 million richer Wednesday.
I learned to program when I was 8 or 9
Klein has always been an entrepreneur, having previously started and sold two other companies. He sold his second company, a leading supplier of storage area networking software, to Hewlett Packard for an undisclosed amount last year. His first company, which developed financial modeling and analysis software, was acquired in 1992, when Klein was 21. While Klein's educational background is in law and business, he showed an enthusiasm for computers from a young age.
I got into computers when I was in elementary school, and learned to program when I was 8 or 9 years old, Klein said in an interview with CNNfn.com
Yahoo! is paying more than $400 million for a company that had revenue of only $3.5 million in the six months ended Jan. 31, 2000, according to a filing made at the Securities and Exchange Commission. Klein said that the company is just starting to generate revenue by selling advertising, having first focused on building the number of users on the site.
There haven't been too many Web businesses growing as quickly as we are, Klein said. We have grown from zero active members on our service to 17 million. Having done that, it's not too difficult to take the next logical leap, which is generating revenue.
Two billion e-mails per month
eGroups sends out two billion e-mails per month, making it one of the largest senders of e-mail in the world. It generates revenue by selling advertising space on each one of those e-mails. Because eGroups' e-mails are targeted to groups of people who share a common interest -- such as golfing or computers -- its service is an attractive medium for advertisers trying to reach a niche group.
While many special interest groups on the site have fewer than 10 members, there are some large ones that have more than 100,000. One group on the site that bills itself as a private e-mail list of connoisseurs of beautiful Indian (sub continental) girls who are willing to share with us their beauty has more than 4,000 members. eGroups needs an array of more than 100 servers running the Linux operating system to handle all this e-mail traffic.