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Microsoft Offers Megabucks to Buy Struggling Yahoo!

Microsoft views Yahoo! as its best shot to catch Google in the race for online ads



Courtesy of iStockphoto, Copyright: Peter Finnie

The Microsoft Corporation today announced that it has offered to buy all of Internet pioneer Yahoo!, Inc.'s outstanding shares, a bid worth around $44.6 billion, 62 percent above Yahoo!'s closing price on Thursday.

Microsoft is seeking a bigger chunk of the online advertising market, which is predicted to grow from more than $40 billion last year to nearly $80 billion by 2010. Google, Inc., which currently has a lock on such advertising, stands to benefit most from this growth unless Microsoft and Yahoo! join forces.

Redmond, Wash.–based Microsoft projects that by combining its and Yahoo!'s efforts it could save as much as $1 billion in duplicative costs. Microsoft says it expects Yahoo! to accept the deal—or some incarnation of it—and that it could be completed by as early as summer.

Yahoo!, based in Sunnyvale, Calif., acknowledged in a statement that it had received an unsolicited bid from Microsoft, which its board of directors would evaluate "carefully and promptly in the context of Yahoo!'s strategic plans and pursue the best course of action to maximize long-term value for shareholders."

In a letter sent to Yahoo!'s board, Microsoft said that the companies had huddled in late 2006 and early last year to discuss possible joint ventures designed "to create a more effective competitor in the online marketplace." The letter notes that Yahoo! rejected a proposed merger at the time and that at this point an outright sale would make better business sense. "The only alternative now is the combination of Microsoft and Yahoo! that we are proposing," the letter says.

Google's share of the U.S. Web search market is estimated at 56 percent by Nielsen, compared with 17 percent for Yahoo! and 13 percent for Microsoft, The Washington Post reported Friday. Earlier this week, financially strapped Yahoo! announced that its 2007 profit fell 12 percent compared with the previous year and that it would be laying off 1,000 workers beginning in February to make ends meet.

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