Overture, once known as Goto.com, provides commercial searches to more than 88,000 advertisers, which pay for each customer directed to their site through one of their searches.
Terry Semel, chairman and chief executive of Yahoo!, said: "Together, the two companies will be able to provide the most compelling and diversified suite of integrated marketing solutions around the globe, including branding, paid placement, graphical ads, text links, multimedia and contextual advertising."
Overture will become a wholly-owned subsidiary of Yahoo!, and its operations will remain in Pasadena following completion of the acquisition. Ted Meisel, president and chief executive offer of Overture, will continue to head up its operations and report to Dan Rosensweig, Yahoo!'s chief operating officer.
Yahoo! revealed its second-quarter results last week, saying that sponsored searches were a major area of growth at the company, contributing to its 42% increase in revenues to $321.4m (拢197.6m) for the quarter.
The deal with Overture will see each common share of the company receive 0.6108 shares in Yahoo! as well as $4.75 in cash, valuing the company at $1.63bn. The companies will have to seek approval for the deal, and said it was likely to be completed in the final quarter of the year.
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