Ciao, which was founded in 1999 and has launched in seven countries including the UK, was acquired by Microsoft in August 2008, for nearly half a billion dollars.
In 2009, Ciao was integrated into Microsoft's then new search engine Bing, including a Ciao shopping engine on the UK MSN site.
A spokeswoman for Microsoft said: "Microsoft plans to continue to offer the same great Ciao experience to Bing users through a partnership with LeGuide.
"There are many activities that must be completed prior to finalising the transaction, and today marks the starting point of these activities at both companies."
Ciao was thrust into the limelight last year, when it complained to the EU that Google abused its dominance in online search, penalising rival companies by placing them lower in the search rankings.
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