Microsoft Corp. Friday offered to buy Yahoo Inc. for $44.6 billion, a move designed to help both companies compete against industry leader Google Inc.
The approach, in a letter to Yahoo's board, comes as Yahoo continues to struggle against Google in the race for online-advertising revenue and Internet-search market share.
The offer, $31 a share in cash and stock, is a 62% premium to Thursday's closing price. Microsoft said Yahoo holders would be able to trade their shares for cash or 0.9509 Microsoft shares a piece, with no more than half of the overall purchase price paid in cash.
The offer may be an attempt to get Yahoo back to the table after the companies held collaboration discussions in late 2006 and early 2007. Those talks included the potential of a merger proposal, but Yahoo told Microsoft in February it wasn't interest in buyout talk.
"While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing," said Microsoft Chief Executive Steve Ballmer in a letter to Yahoo's board.
He noted Yahoo's decision at the time was based on the "potential upside" of its own plans and a "significant organizational alignment," led by the long-awaited overhaul to its search-advertising system dubbed Project Panama.
"A year has gone by, and the competitive situation has not improved," Mr. Ballmer wrote.
Yahoo shares jumped to $29.45 in premarket trading. Microsoft closed at $32.60 and dipped to $32 premarket. Google, which issued weaker-than-projected fourth-quarter results late Thursday and saw its stock fall in after-hours trading, was recently at $517 in premarket activity, down from its closing price of $564.30.
"We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," said Ballmer in a statement accompanying the letter. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."
Microsoft noted the market for online advertising is "increasingly dominated by one player. Together, Microsoft and Yahoo can offer competitive choice while better fulfilling the needs of customers and partners."
The company added the deal would also result in "combined engineering talent to accelerate innovation," a hint that Microsoft can't alone take on Google with its current staff. Microsoft executive Kevin Johnson said a merger would result in "R&D critical mass to deliver innovation breakthroughs. The industry will be well served by having more than one strong player."
Renewed takeover speculation fired up after Yahoo late Tuesday posted a drop in fourth-quarter net income and issued a 2008 outlook that fell short of analysts' expectations.
Speculation about a Yahoo buyout has swirled since last year, when Microsoft's interest in such a deal was reported. Buying Yahoo would theoretically place Microsoft as significant competitor in the Internet search market, where it has so far lagged behind both Yahoo and Google. Microsoft, which has thriving software businesses that could fund a much deeper foray into Internet markets, hadn't actively dispelled rumors it was considering an acquisition of Yahoo.
The proposal is subject to the negotiation of a definitive agreement between the two companies. Microsoft is saying a deal could close in the second half of the year.
Microsoft will host a conference call to discuss the proposal at 8:30 a.m. EST. <<
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