EGroups scrapped its planned $75 million initial public offering first thing Wednesday morning. But don't cry for the email provider: Yahoo bought the company for $432 million moments later.

EGroups provides Web site and email bulletin board services to 800,000 groups. Analysts say that eGroups will dovetail perfectly with Yahoo's online clubs site and chat rooms, helping the portal continue to add loyal customers in the brutal competition for shrinking online advertising dollars. EGroups has 17 million members who sent 3.6 billion messages in March. Every eGroups-generated email comes with a banner ad attached.

Yahoo also hopes the email service will be of use somehow to its recently launched Corporate Yahoo, a site that designs individual portals for businesses.

But did Yahoo pay too much?

THE GOING RATE

"We believe we paid a fair market price," says Geoff Ralston, vice president of Yahoo's communications group, responding to concerns that the portal overpaid for eGroups. "We picked off a plum."

Indeed, Yahoo did buy a company that dominates its market so much that other portals will be hard-pressed to match the move. EGroups, which continues to grow at a rapid pace, merged with its biggest rival, Onelist.com, in November, leaving an assortment of minor league companies, such as Topica.com and Fidget.com, for Yahoo's competitors to pick over.

Yahoo says it will issue 3.42 million shares of its stock for eGroups, which has 150 employees all holding stock options. EGroups CEO Michael Klein, 30, says his employees' options will now vest as Yahoo stock, which closed Wednesday down $2.38 a share to $123.56.

Mr. Klein says the employees greeted the news with a "range of reactions" when told of the acquisition during a meeting Wednesday with some wondering if their options would have been worth more if eGroups had gone ahead with its IPO. Mr. Klein says he responded, in essence, that there are worse positions to be in than holding Yahoo stock options.

EGROUPS REGROUPS

For Mr. Klein, the grandson of the inventor of the paint-by-number art kits, the acquisition represents the second huge sell-out he has presided over in a little more than a year. In May 1999, he sold his 60-employee Transoft Networks to Hewlett-Packard for an undisclosed amount.

Onelist.com hired Mr. Klein as its CEO in October. The next month, Mr. Klein and Seqouia Capital's Mike Moritz -- eGroups's acting CEO at the time -- merged the two companies. Mr. Klein was appointed CEO of the merged companies while Mr. Moritz sat on the board of directors.

In fact, Mr. Klein credits Mr. Moritz with setting the latest acquisition in motion. Mr. Moritz also sits on Yahoo's board of directors and, according to Mr. Klein, encouraged Yahoo executives to contact eGroups. Mr. Klein says he met with Yahoo CEO Tim Koogle at Yahoo's Santa Clara headquarters last month and closed the deal Tuesday night after a series of meetings.

Sequoia Capital served as lead investor during eGroups's $5.1 million first round of funding in January 1999, while Onelist.com got $4 million at the same time from a group led by CMGI. Earlier this year, the merged company received $42 million in second-round funding from a group that included Bank of America Ventures and Comdisco Ventures.

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