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Monday, October 09, 2006, 05:10 pm PT (08:10 pm ET)

Google pockets YouTube for $1.65 billion

Ending a week of rumors, Google on Monday said it has agreed to acquire YouTube for $1.65 billion in a stock-for-stock transaction.

The Mountain View, Calif.-based Internet search giant said YouTube will operate independently following the transaction in order to preserve its successful brand and passionate community.

The acquisition combines one of the largest and fastest growing online video entertainment communities with Google's expertise in organizing information and and its own fledgling video business.

Google said the combined companies will focus on providing a better, more comprehensive experience for users interested in uploading, watching and sharing videos, and will offer new opportunities for professional content owners to distribute their work to reach a vast new audience.

"The YouTube team has built an exciting and powerful media platform that complements Google's mission to organize the world's information and make it universally accessible and useful," said Google chief executive Eric Schmidt.

"Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers."

When the acquisition is complete, YouTube will retain its distinct brand identity, strengthening and complementing Google's own fast-growing video business, Google said in a statement. YouTube will continue to be based in San Bruno, CA, and all YouTube employees will remain with the company.

Google said the number of its shares to be issued in the transaction will be determined based on the 30-day average closing price two trading days prior to the completion of the acquisition.

The deal is expected to close in the fourth quarter of 2006.