Microsoft Bids $44.6 Billion for Yahoo

The Redmond, Wash.-based software giant announced its offer in a press release Friday, noting particular interest in the pickup of the online advertising market.

"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," Steve Ballmer, Microsoft's CEO, said in a prepared statement. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."

Under terms of the proposal, Microsoft would buy out all outstanding shares of Yahoo stock "for per share consideration of $31" - - either in the form of cash or .9509 of a share of Microsoft stock for each share of Yahoo.

The deal immediately heightens the war between software giant Microsoft and search giant Google. Microsoft currently offers its Live search engine on the web, but the effort has failed to gain significant traction.

Microsoft said it had scheduled a conference call with reporters and analysts at 8:30 a.m. Eastern Time to provide more detail.

Yahoo provided no immediate comment and the offer would need to be approved by both the company's directors and shareholders.

The proposed deal marks a whopping 62 percent premium over Yahoo's stock price at the close of business on Thursday. Microsoft delivered its offer to Yahoo in a letter dated Thursday from CEO Steve Ballmer to Yahoo's Board of Directors.

In that letter, Ballmer revealed the two companies had been in talks previously about cooperating.

"Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers," Ballmer wrote.

"In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together," Ballmer wrote. "These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected.

"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," Ballmer wrote.

Yahoo has been a company in transition. Challenged by some admitted missteps and the victim of massive success by search and Web rival Google, co-founder of Yahoo Jerry Yang returned to the CEO position of the company last year, replacing media industry veteran Terry Semel. Perhaps coincidently, Semel had remained on Yahoo's Board of Directors until resigning yesterday - - the same day Microsoft made its bold offer to buy Yahoo.

While an acquisition of Yahoo would immediately strengthen Microsoft's competitive position against Google, the buyout attempt may not be without peril. Microsoft has often been a magnet for scrutiny by anti-trust regulators; in fact, it's offer in 1995 to buy Intuit, the maker of finance software, ended after the U.S. Department of Justice raised some objections and the proposed merger wound up falling apart.

In its statement announcing the proposal, Microsoft said it believes the deal would clear any regulatory hurdle.