NEW YORK (Reuters) – Microsoft Corp has made an unsolicited offer tobuy Yahoo Inc for $44.6 billion in cash and stock, seeking to joinforces against Google Inc in what would be the biggest Internet dealsince the Time Warner-AOL merger.
In its boldest-ever acquisition move, Microsoft said on Friday itoffered $31 per share for Yahoo, or a 62 percent premium over theInternet media company’s closing stock price on Nasdaq Thursday.
Yahoo, whose shares jumped to $30.75 in premarket trading, said it would evaluate the bid.
Microsoft shares, which have a market capitalization of about $300 billion, fell 6 percent to $30.78.
Speculation over a Microsoft move on Yahoo has swirled for at leasta year, as investors wondered whether the two would seek a joint standagainst an ever more powerful Google.
Internet audience researcher comScore estimates Google’s share ofthe worldwide Web search market has reached 77 percent, while Yahoo issecond with 16 percent and Microsoft was a distant third with 3.7percent.
"Microsoft’s wanted to do things that could build up its onlinebusiness dramatically," said Brendan Barnicle, an analyst at PacificCrest Securities. "This is going to be a big bet for them. But I alsothink it’s where they see the market going, so they really needed toget there.
"This is more than a shot across the bow at Google, because you putthese two guys together who are basically two and three in search andmakes them far more relevant," he added.
Critics of a tie-up, however, have pointed out that Microsoft andYahoo have very different corporate cultures and many overlappingbusinesses, from instant messaging to email and advertising, as well asnews, travel and finance sites.
"To me, the premium seems exorbitant, for what is a dwindlingbusiness. I personally don’t see how the synergies of Microsoft-Yahoois going to take on Google," said Tim Smalls, head of U.S. stocktrading at brokerage firm Execution LLC.
Yahoo attracts more than 500 million people monthly to a range ofmedia sites including Yahoo Mail, the world’s biggest e-mail servicefor consumers.
It has been losing market share to Google in the increasinglystrategic Web search market, and warned earlier this week that Yahoofaced "headwinds" in 2008, forecasting revenue below Wall Streetestimates.
Microsoft said the online advertising market is growing rapidly andexpected to reach nearly $80 billion by 2010 from over $40 billion in2007. It added it is "increasingly dominated by one player," referringto Google.
"We have great respect for Yahoo, and together we can offer anincreasingly exciting set of solutions for consumers, publishers andadvertisers while becoming better positioned to compete in the onlineservices market," Microsoft Chief Executive Steve Ballmer said in astatement.
Microsoft, the world’s largest software company, said it hadidentified four areas that would generate at least $1 billion in annualsynergies for the combined entity.
Under the proposal, Yahoo shareholders can choose to get $31 cash,or 0.9509 of a share of Microsoft common stock. The deal in aggregatemust consist of one-half cash and one-half Microsoft common stock, itsaid.
Mark May, analyst at Needham & Co, said that while the price isa premium to Yahoo’s recent trading price, it was in line with itsaverage trading value over the last 2 years.
"I would not be surprised to see this bid have to be raised overtime," he said. "I think there are companies out there like Comcast(Corp) and Viacom (Inc) and others that still need to address theemergence of online media and haven’t. So there are clearly otherstrategic companies out there."
The Microsoft-Yahoo deal would be the largest in the Internet marketsince the $182 billion purchase of Time Warner Inc by AOL in 2001,which was seen as the worst merger in recent corporate history, withclashing corporate cultures and many of the promised synergies nevermaterializing.
(Reporting by Franklin Paul and Tiffany Wu; Editing by Lisa Von Ahn/Jeffrey Benkoe)
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