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Microsoft buys European shopping site

Software giant hopes to boost search services

By Phil Serafino and Dina Bass, Bloomberg News

Published August 31, 2008 at 9:48 p.m.

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Microsoft Corp., seeking to catch Google Inc. in the Internet-search market, agreed to buy Greenfield Online Inc. for $486 million to add Web sites that help consumers find product reviews and compare prices.

Greenfield shareholders will get $17.50 a share in cash, Microsoft said. Greenfield, which runs the Ciao shopping sites in Europe, ended a takeover agreement with Quadrangle Group LLC for $15.50 a share this week to pursue a higher offer.

Microsoft, which handles about 9 percent of Web searches in the U.S., has an even lower share abroad. The company is adding more services that help consumers find products on the Internet, an area where it says its software is more effective than Google's. Munich-based Ciao provides consumer reviews and ratings along with prices from online merchants.

"Almost all of the revenue from search advertising comes from transactional searches," said Charles Di Bona, an analyst at Sanford C. Bernstein & Co. in New York. Improving the results for those queries is Microsoft's best chance to make more money, he said.

The price is 1.4 percent more than Greenfield's closing price Thursday, and 32 percent higher than June 13, the last trading day before Greenfield agreed to sell itself to Quadrangle, the buyout firm run by Steven Rattner.

Microsoft is looking for ways to boost its unprofitable Internet business after failing to buy Yahoo! Inc. this year. In May, Microsoft started giving cash to people who use its search engine to shop online. Ciao's features will become part of Microsoft's Live Search program.

"Our goal is to create simple applications for the search areas with the biggest demand," Dorothee Ritz, Microsoft's general manager for consumer and online in Germany, said on a conference call. "We have the financial means to expand in this area both organically and through acquisitions."

Ciao gets 26.5 million unique visitors a month from seven countries, Microsoft said, citing data from ComScore Inc.

The company plans to complete the deal in the fourth quarter.

Microsoft will need to spend at least $1.2 billion annually to match Google's research and development, plus additional funds for marketing, Chief Executive Officer Steve Ballmer said last month.

Microsoft has agreed to sell the Internet survey business of Greenfield to an unidentified financial buyer, according to Greenfield's statement. The acquisition of Greenfield doesn't depend on the sale of the survey business.

Investor Pennant Capital Management LLC, which owns a 10 percent stake in Greenfield, had called the Quadrangle offer inadequate in a June 27 regulatory filing. Quadrangle will get a $5 million breakup fee.