Microsoft makes offer for Yahoo!

Microsoft has swooped on Yahoo, with a $44.6 billion buy-out offer. The offer, for $31 per share, puts a 62% premium on the search provider.

In a statement, Microsoft said that the move would strengthen the company's capabilities in online advertising.

Microsoft chief executive Steve Ballmer said: "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. We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."

The move comes as a direct challenge to Google, the leader in online search. Without naming its competitor, Kevin Johnson, president of the Platforms & Services Division of Microsoft, stated in a conference call on Friday: "The market is dominated by one player. By combining with Yahoo! we can offer consumers, advertisers and publishers a better value proposition."

Microsoft purchased online ad specialist aQuantive, for $6 billion in May last year, but that deal gave Microsoft services for advertisers and publishers said Ballmer, without delivering customers. With an acquisition of Yahoo, Microsoft would gain access to Yahoo! consumer base, creating the right mix of advertisers, publishers and customers to create a significant online ad market. According to the statement, Microsoft believes that the acquisition of Yahoo! would create synergies of at least $1 billion per year, through audience critical mass and more value for advertisers; combined R&D efforts; operational efficiencies and the development of emerging areas such as video and mobile.

"The combined assets and strong services focus of these two companies will enable us to achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs," said Johnson. "The industry will be well served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers."

Last week Yahoo announced that it was to cut 1,000 jobs as part of a realignment of its 14,300 staff to focus on growth areas. The company posted revenue growth of 8% to $1.8 billion for FY07, although profits fell by 23% in Q4.

Microsoft had opened discussions with Yahoo! management eighteen months ago, Ballmer said in the conference call, and had previously made an offer, which was declined, twelve months ago.

"One year ago the Yahoo management said that it wasn't the right time to make this deal; We believe in the benefits of this deal more than ever, which why we made the offer public today," Ballmer said.