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Yahoo! gobbles up Internet software firm

Yahoo! Inc. (Nasdaq: YHOO) said Thursday it would pay $130 million for Encompass Inc., a privately held Internet software developer. Its shares were off 4 3/4 to 136 1/8.

Company officials said the deal would be accounted for as a pooling of interests.

Adding Encompass to the fold will give Yahoo! the ability to offer software to computer makers, Internet service providers, advertisers and online commerce sites.

After shelling out big bucks to acquire both Broadcast.com Inc. (Nasdaq: BCST) and GeoCities Inc. (Nasdaq: GCTY) earlier this year, Yahoo! will use the Encompass acquisition as a springboard to reach more corporations and small business owners.

Yahoo has had distribution agreements with Encompass for more than a year in which Encompass pairs its Internet access software with Yahoo's personalized My Yahoo site.

Yahoo! shares have drifted back from a 52-week high of 244 set in April.

Last quarter, it hurdled analysts' estimates in its first quarter, earning $25 million, or 11 cents a share, on sales of $86 million.

First Call consensus expects it to earn 8 cents a share in the second quarter and 38 cents a share in the fiscal year.

Twenty of the 26 analysts following the stock rate it either a "buy" or "strong buy."