Internet group AOL has agreed a deal to buy social networking website Bebo for $850 million (£417 million).
The takeover is the latest in a string of multi-million-pound deals as firms look to tap into the boom in popularity of social networking sites.
Rupert Murdoch’s News Corporation bought MySpace in 2005 for $580 million (£285 million), while technology giant Microsoft snapped up a 1.6 per cent stake in Facebook for $240 million (£118 million) last year.
The AOL deal is set to net Bebo founders Michael and Xochi Birch a significant windfall.
They launched Bebo in July 2005 and have seen the business grow into one of the world’s largest social networking sites, with a global membership of more than 40 million people. Bebo claims to be the top social network in Britain, Ireland and New Zealand. It is number three in the US behind News Corporation's MySpace and Facebook.
"AOL, at its core, is a way for people to connect," said AOL president Ron Grant. "We need to get back to our roots."
The two companies had spent the last six months hashing out the deal, executives said. Mr Grant added that Bebo's focus on media and international interest attracted AOL to Bebo.
The purchase comes amid a wholesale transformation of AOL from a dial-up internet provider to an online advertising powerhouse.
It has spent nearly $1 billion to create one of the biggest third party display ad units, Platform-A.
AOL aims to gird against the prospect of bigger rivals as Microsoft pursues a deal to buy Yahoo! and following Google's purchase of DoubleClick.
AOL said Bebo will help round out its personal communications offerings, now comprised of AOL Instant Messenger and ICQ, two wildly popular services that let users send quick text, video and audio correspondence. But despite its global popularity AOL has not had much success turning that into a business.
Meanwhile, research from the Gartner Group recommends that businesses should not block access to social networking sites like Facebook, Bebo and others, but rather embrace these consumer tools to 'encourage creativity and collaboration' on the job.
The research relies on a Gartner Executive Programs survey of 1,500 chief information officers worldwide, in which half of the respondents said they plan to invest in Web 2.0 technologies for the first time in 2008.
WorkLight, an Enterprise 2.0 company, has said that Gartner's report on Web 2.0 services is a clear indication of the added-value that social networking services and other consumer tools bring to the workplace.
David Lavenda, WorkLight’s vice-president of marketing, said: "In the near future businesses will require their IT security systems to provide secure access to Web 2.0 services like Facebook, rather than block the facility."