Microsoft Makes $44.6 Billion Bid to Acquire Yahoo

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It would be one of the most surprising buyouts in recent memory; Microsoft is bidding to buy Yahoo. Microsoft has put down a $44.6 billion cash and shares bid to buy Yahoo, making it one of the largest takeover bids in U.S. tech history.

Digital Journal -- In a press release issued by Microsoft today, The Redmond-based giant has announced it is bidding to buy one of its Web rivals, Yahoo, for $31 per share.

Microsoft said it would create a combined entity to "create a more competitive company, providing superior value to shareholders, better choice and innovation for customers and partners."

Microsoft is bidding to acquire all outstanding shares of Yahoo common stock at $31 per share, totaling $44.6 billion. The deal would allow Yahoo shareholders to elect to receive cash or a fixed number of Microsoft shares, with total considerations payable to Yahoo shareholders being made up of 50 per cent cash and 50 per cent Microsoft common stock. Microsoft notes in its announcement this represents a 62 per cent premium above the closing price of Yahoo stock yesterday.

“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 Steve Ballmer, chief executive officer of Microsoft. “We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners.”

The immediate reaction from the tech industry is that this is a move to compete aggressively with companies like Google. Both Microsoft and Yahoo have slowed behind rival Google in Internet search, and Yahoo has lost about 30 per cent of its share value in the last year.

Google seems to be a primary motivator for this acquisition announcement, as Microsoft even went so far as to allude to Google in its public announcement: "Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners."

The company says it would benefit through economies of scale, consolidating and converging with capital costs for advertising platform providers. Microsoft notes the online ad market will double from 2007 to 2010, from $40 billion to nearly $80 billion. The company also says it can reach R&D critical mass to deliver innovation breakthroughs.

“Our lives, our businesses, and even our society have been progressively transformed by the Web, and Yahoo! has played a pioneering role by building compelling, high-scale services and infrastructure,” said Ray Ozzie, chief software architect at Microsoft. “The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own.”

Kevin Johnson, president of the Platforms & Services Division of Microsoft, also alluded to Google in the company's announcement, saying, “The industry will be well served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers.”

Microsoft is stressing a buyout would make the company more efficient and powerful in four areas: "scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile." The company believes these areas will generate at least $1 billion in annual synergy for a combined Yahoo-Microsoft entity.

Furthermore, Microsoft says it as created plans to utilize employees from both Yahoo and from within its own organization to integrate the two companies, and it will offer "significant" retention packages to Yahoo engineers, "key leaders" and employees.

Microsoft is confident this bid will receive all regulatory approvals and said the transaction should be complete by the second half of the 2008 calendar year.

To read the letter Microsoft CEO Steve Ballmer sent to Yahoo's board of directors, including more detail of the proposed buyout bid, see DigitalJournal.com's coverage here.