NEW YORK (Reuters) - Microsoft Corp has made an unsolicited offer to
buy Yahoo Inc for $44.6 billion in cash and stock, seeking to join
forces against Google Inc in what would be the biggest Internet deal
since the Time Warner-AOL merger.
In its boldest-ever acquisition move, Microsoft said on Friday it
offered $31 per share for Yahoo, or a 62 percent premium over the
Internet 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 least
a year, as investors wondered whether the two would seek a joint stand
against an ever more powerful Google.
Internet audience researcher comScore estimates Google's share of
the worldwide Web search market has reached 77 percent, while Yahoo is
second with 16 percent and Microsoft was a distant third with 3.7
percent.
"Microsoft's wanted to do things that could build up its online
business dramatically," said Brendan Barnicle, an analyst at Pacific
Crest Securities. "This is going to be a big bet for them. But I also
think it's where they see the market going, so they really needed to
get there.
"This is more than a shot across the bow at Google, because you put
these two guys together who are basically two and three in search and
makes them far more relevant," he added.
Critics of a tie-up, however, have pointed out that Microsoft and
Yahoo have very different corporate cultures and many overlapping
businesses, from instant messaging to email and advertising, as well as
news, travel and finance sites.
"To me, the premium seems exorbitant, for what is a dwindling
business. I personally don't see how the synergies of Microsoft-Yahoo
is going to take on Google," said Tim Smalls, head of U.S. stock
trading at brokerage firm Execution LLC.
Yahoo attracts more than 500 million people monthly to a range of
media sites including Yahoo Mail, the world's biggest e-mail service
for consumers.
It has been losing market share to Google in the increasingly
strategic Web search market, and warned earlier this week that Yahoo
faced "headwinds" in 2008, forecasting revenue below Wall Street
estimates.
Microsoft said the online advertising market is growing rapidly and
expected to reach nearly $80 billion by 2010 from over $40 billion in
2007. It added it is "increasingly dominated by one player," referring
to Google.
"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," Microsoft Chief Executive Steve Ballmer said in a
statement.
Microsoft, the world's largest software company, said it had
identified four areas that would generate at least $1 billion in annual
synergies 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 aggregate
must consist of one-half cash and one-half Microsoft common stock, it
said.
Mark May, analyst at Needham & Co, said that while the price is
a premium to Yahoo's recent trading price, it was in line with its
average trading value over the last 2 years.
"I would not be surprised to see this bid have to be raised over
time," he said. "I think there are companies out there like Comcast
(Corp) and Viacom (Inc) and others that still need to address the
emergence of online media and haven't. So there are clearly other
strategic companies out there."
The Microsoft-Yahoo deal would be the largest in the Internet market
since the $182 billion purchase of Time Warner Inc by AOL in 2001,
which was seen as the worst merger in recent corporate history, with
clashing corporate cultures and many of the promised synergies never
materializing.
(Reporting by Franklin Paul and Tiffany Wu; Editing by Lisa Von Ahn/Jeffrey Benkoe)
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