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The purchase, representing a move into both financial services and real estate, is "the most important strategic foot we've put down in the last year," said Diller, chairman and chief executive of USA Interactive, on a conference call.

Indeed, the company (USAI) has been busy expanding the scope of its personals and travel-related services in the last year, but Monday's acquisition announcement positions USA Interactive as a player in an entirely new segment.

While saying the acquisition is consistent with his interest in getting into the financial-services and real-estate businesses, Diller wouldn't elaborate on what further types of businesses USA Interactive would consider buying or building as it expands into the financial arena.

USA Interactive's deal for LendingTree (TREE) is a stock-for-stock transaction worth up to $734 million.

LendingTree shareholders will get 0.6199 of a share of USA stock in exchange for each share they own in LendingTree.

On the news, LendingTree catapulted $6.03 to $20.71, jumping 41 percent by the closing bell, while shares of Homestore.com (HOMS) and E-Loan (EELN) ran up along with LendingTree, as investors reset valuations in light of the premium that USA Interactive is paying.

Meanwhile, USA Interactive gave up 3 percent, to $34.10. Shares of Expedia (EXPE) and Hotels.com (ROOM) , for which USA Interactive has stock-swap acquisition deals pending, both lost ground as well.

Growing business, hefty price

Doug Lebda, LendingTree founder and chief executive, and Tom Reddin, president and chief operating officer, are to stay on, along with several other key members of the senior management team.

Lebda noted that LendingTree originated $22 billion of total loans last year, which he said was roughly seven-tenths of a percentage point of the overall loan origination market.

LendingTree expects that to grow to 2 percent in five years. Part of that growth may come from being integrated into the USA Interactive family, which executives say has a relationship with 40 million consumers.

Outside of USA Interactive, LendingTree has distribution partnerships with Microsoft's (MSFT) MSN as well as Yahoo (YHOO) and Overture Services (OVER) , Lebda said. Lebda also forecasted that earnings at LendingTree would grow 30 percent annually through 2006.

Undoubtedly, Diller believes in that growth opportunity. The premium paid also says a lot about Diller's desire to get into the financial-services business. But analysts were surprised USA Interactive agreed to such a premium for an asset that's been riding high on the boom in home refinances.

Analysts asked executives on the call why USAI didn't wait until after Charlotte, N.C.-based LendingTree proved it could operate successfully during a refinancing slump.

Diller answered as though he felt analysts were blinded by the trees and unable to see the forest. The deal was more strategic because it was counterintuitive, he suggested.

"We don't care," answered Diller, referring to that question about declining refinance activity, saying USA Interactive is looking at long-term prospects.

"The market is big enough. ... What we care about is have we bought the right business," he said.

Roots

The seeds for what eventually became Monday's deal between USA Interactive and LendingTree were sewn last year.

That's when bankers from J.P. Morgan Chase (JPM) were hired by USA Interactive to conduct a strategic review. Diller was seeking to expand the content of USA Interactive into financial services. But he was unsure whether to buy or build, according to a person familiar with the talks.

J.P. Morgan concluded that Diller and USA Interactive should explore buying an existing player. And earlier this year, it contacted Lending Tree.

USA Interactive received legal advice from Wachtell Lipton Rosen & Katz. LendingTree was advised by Merrill Lynch (MER) and received legal advice from Kennedy Covington Lobdell & Hickman and Weil Gotshal & Manges.