Merger-craziness suggest bubble is on

Would you pay US$1.9 billion for an Internet company in the year 2005?

Apparently, Barry Diller thinks there's still money to be made.

Diller, who was behind the rise of Fox TV in the 80s/90s, owns more than 40 websites including online travel agencies Expedia and Hotels.com, social sites Match.com and Evite.com, and services like Ticketmaster and LendingTree.

His company, New York-based IAC/InterActiveCorp, is buying online search engine Ask Jeeves Inc by swapping 1.2668 of its shares for each of the latter's roughly 69.4 million outstanding shares.

The exchange ratio valued the takeover at US$1.9 billion, or US$27.40 per share, based on Monday's stock prices.

Diller is betting he can transform a second-tier search engine into a more formidable threat to industry leaders Google and Yahoo and swipe a piece of their growing search engine advertising pie.

"We now have all the clay we need to do whatever we need," Diller told analysts during a conference call Monday.

Ask Jeeves ranks a poor fifth in the search market behind Google, Yahoo, MSN and AOL, according comScore Media Metrix, but it paid US$395 million last year to buy a family of websites that included Excite.com, iWon.com and Myway.com.

Couple that with what The New York Times Co. paid for About.com [US$410 million] and Dow Jones & Co.'s US$500 million acquisition of MarketWatch Inc and we are witnessing a wave of sheer nuttiness.

When did buying the survivors of the dotcom meltdown make any valuation sense?

HP, that just shed its CEO, has joined the fray as well. It just paid an undisclosed sum for online photo service Snapfish on Monday. That followed closely in the heels on Friday's deal when Yahoo sprung for taggable photo service startup Flickr. Last summer Google grabbed Picasa.

Can anyone now doubt that the Second Wave is on, or that the bubble will follow suit?

Time to go get a reality check at Ghost Sites, Dotcom Dropout and F**ked Company.