Microsoft bids $44.6 billion for Yahoo

Microsoft went public Friday with a $44.6 billion cash-and-stock bid to acquire Yahoo.

In its response, Yahoo called the Microsoft bid "unsolicited" but did not reject it.

Microsoft's offer, which was contained in the letter to Yahoo's board, amounts to $31 a share and represents a 62 percent premium over Yahoo's closing price on Thursday. Microsoft said it will offer shareholders the option of cash or stock.

"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 CEO Steve Ballmer said in a statement.

News.com Poll

Should Microsoft be allowed to buy Yahoo?

Yes. Google is a monopolistic threat to Microsoft.
No. I like things just the way they are.

View results

Yahoo said in a responding statement that its board "will evaluate this proposal carefully and promptly, in the context of Yahoo's strategic plans, and pursue the best course of action to maximize long-term value for shareholders."

The deal comes as Microsoft and Yahoo have both struggled to compete against Google.

Microsoft didn't mention Google by name in its announcement, but it did indicate that its acquisition bid was aimed squarely at its rival.

"Today, the market is increasingly dominated by one player, who is consolidating its dominance through acquisition," Microsoft said. "Together, Microsoft and Yahoo can offer a credible alternative."

In a conference call Friday morning, Ballmer said that Microsoft and Yahoo "really do share a vision for the potential of online services."

Microsoft said in its statement that it believes that it can get all of the needed regulatory approvals and that the deal, if ultimately approved by Yahoo shareholders, could be completed in the second half of the year.

Michael Gartenberg, an analyst at Jupiter Research, said it's "clear that there is increased pressure on Microsoft from Google, and they recognize that. Way back when, Yahoo wasn't that interested in a Microsoft deal. What a difference two years make. Microsoft has a pile of money, and Yahoo has experienced problems of its own. Ballmer, in the past, has historically not loved these types of deals. It is indicative of how different the world is now."

Gartenberg added that the deal "absolutely" makes sense. "But there is a lot to be done in the details. Getting this deal done might be the easiest part. The real challenge is what happens when they finish the deal. This is not a panacea--the details will be what matters," he said.

Rumors that Microsoft was interested in Yahoo have bubbled up from time to time, including the past two springs, on the eve of Microsoft advertising conferences.

The move would be by far the largest acquisition ever for Microsoft. Its largest prior deal, also in the online-advertising space, was last year's $6 billion deal to acquire Aquantive.

Asked on the conference call why Microsoft still needs Yahoo after buying Aquantive, Ballmer pointed to Yahoo's reach with consumers.

"Certainly from a consumer perspective, there's no better way to increase scale and capacity than this acquisition," Ballmer said.

Microsoft also pointed to the intense investments needed in data centers and technology needed to compete with Google.

"Scale matters," said Kevin Johnson, president of the Microsoft division that houses Windows and online advertising. "Some of the scale economics can kick in rather rapidly."

Ultimately, Ballmer said, the deal should help Microsoft become profitable in online advertising.

"We've been losing money," Ballmer said. "Our plan would be to not lose money in the future."

In a letter sent to Yahoo's board late Thursday, Microsoft confirmed that it has had talks with Yahoo since 2006 but that its suggestions of an acquisition had been rebuffed.

"In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together," Microsoft said. "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."

The letter goes on to say that an offer in February 2007 was also rejected. Although at one time, Microsoft was open to other kinds of partnerships with Yahoo, the company says now it just wants to own Yahoo outright.

"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," Microsoft said in the letter.

In the conference call, Ballmer said that when Microsoft first talked to Yahoo more than a year ago, it believed that a merger would have benefits to both companies.

"We believe now in those benefits more than ever," Ballmer said.

The public offer follows Yahoo's disappointing earnings report on Tuesday, which sent the company's shares down. Yahoo CEO Jerry Yang said Tuesday that the company is facing "headwinds." He also announced 1,000 layoffs.

Terry Semel, Yahoo's former CEO, who left that position last summer but remained as nonexecutive chairman of the board, left the company altogether on Thursday.

Microsoft's move validates Yahoo's value and could bring out other prospective buyers, said Danny Sullivan, editor of Search Engine Land. However, Microsoft doesn't have enough of a plan as to how it would integrate Yahoo into the company, he said.

Unlike with Microsoft's Aquantive and Tellme acquisitions, Microsoft and its Live brands have a lot of overlap with Yahoo, including e-mail, portal, advertising, and search.

"Microsoft suffers in that they are conflicted over two different brands, and now they're going to have to be conflicted over three," Sullivan said. "If Microsoft wants to be a leader in search, this is a way for them to climb up and be No. 2 against Google. And it validates that Yahoo isn't a loser. It's a company that's worth a lot of money."

A merger might give Google some extra competition, but it wouldn't unseat it as the top search provider, and it would take some time to convince advertisers that they would do better on a Microsoft-Yahoo platform over Google's highly successful ad business, said Mark Mahaney of Citigroup.

"If Yahoo wants to remain independent, it will need to show investors that it is willing to take radical, value-creating steps," and outsourcing search to Google is one of its few options, Mahaney wrote in a research note.

Imran Khan of J.P. Morgan Securities thinks that regulators will approve the deal.

"Yahoo is better off inside a larger company with (a) strong balance sheet and technology," Khan wrote in a research note. A merger of Microsoft and Yahoo could give them the scale, in terms of search traffic, that they need to compete against Google and provide a boost on the ad side, he added.

"A combination of Yahoo's relationships (with DSL providers), and Microsoft's applications and devices, could create a very well positioned potential competitor," Khan wrote.

Microsoft's financial advisers are Morgan Stanley and The Blackstone Group.

CNET News.com's Mike Ricciuti contributed to this report.

[thisislovell]

What?!!?!??!?!??!???

WHAT??!??@!??!@#??!#??!#?%???

That is all.

[dsairai]

great news, now there is competition 4 google...

no more whinging and moanig by M$ if they get yahoo in their bag....

[n3td3v]

Google should watch out

they had already merged their Instant Messenger networks together.

we all knew big deals were in the pipe line.

Microsoft need this to fight Google and Yahoo need this to fight Google.

It all makes good business sense.

Google watch out... Yahoo are making a come back and they are gonna eat you up whole.

[JCPayne]

Canceling my Email, Verizon-Yahoo! Geocities

I'm spending my Friday getting ready to cancel My Yahoo email addresses, My Verizon-Yahoo! DSL service. My Yahoo Geocities accounts and my old legacy Prodigy(AT&T)-Yahoo! email addresses today....

I had the chance to BUY Microsoft or AOL products and they didn't appeal to me so take the hint Microsoft and AOL. I went to Yahoo to escape those two companies and now they feel they can just swoop up my patronage??? I don't think so....

Everything Microsoft touches is a flop.

MSNBC, Hotmail, Microsoft Network (Since rebranded MSN), ZUNE (with it's restrictive policies over what people can do with their own music) etc.....

Anyway if Yahoo goes forward with this, by canceling my services with Yahoo I'll save myself almost $100 a month... I'm not keeping any so called "Microsoft-Yahoo" stuff....

Also has anyone else noticed the HUGE spike in Spam on Yahoo Instant Messenger since Yahoo started to make it interoperable with Microsoft's messenger??? SPAMMERS love when two networks get together like that, because they can spam double the people in one network using a single app.

Microsoft-Yahoo? Heck it wont get my blessing or my $$$$.

[Maclover1]

It was written all over the wall

that this was going to happen. First the IM merger stuff to help fight off Google/AIM.

MS has been trying so hard to break the Google grip on the search market buying Yahoo only helps that.

To be honest Yahoo employees should be happy. Yahoo was going down, MS should have waited for the fire sale, but was probably worried Google would buy them. Yahoo offered nothing really anymore that Google or MS already have.

ATT could have bought them, to get the email and such since they use them for all of their customers. Oh well it will just be hotmail now.

Time to switch my only remaining Yahoo app to
Google...gtalk here i come.

[fred dunn]

How's Googles Stock Value Reacting to this?

This would be a good thing for both MS and Yahoo but definitely not Google.

I am going to be interested to see the stock value of Google as this plays on.

I'll bet that Google stock will go to "hold" status until the merger (if it occurs) is complete. This could take some time but both companies needed each other in a bad way. This would be such a perfect match, and a way to keep Yahoo alive.

If MS & Yahoo do what I think they are capable of then you'd better start selling your Google stock now.

One thing that could throw a wrench into the works is if MS decides to rid itself of the Yahoo name, then all bets are off.

[naterandrews]

Anti-competitive?

With Microsoft now being watched for anti-competitive behaviors until 2009 this could spark some interesting controversy. With two of the top presences on the internet this deal may not go through- especially since MSFT recently aquired Aquantive, a few other ad agencies, and launched massive deals for ads. Couple that with Yahoo! (sure, they aren't that powerful in ads but they do have a strong presence in recurring revenue markets and a large user base to turn around their situation if handled correctly) and I see some concern raised by not only Google but a handful of other companies.

Me thinks that Microsoft was getting tired of playing the "gentle giant" card after showing it can at least TRY to remain competitive- but with Google (up until now) reporting astronomical growth, they are backed into a corner and are on the prowl for blood. Will this be the start of a new downward spiral for Microsoft (in terms of anti-trust suits all over again)?

[rcrusoe]

Probably won't change a thing

On one hand you have Microsoft who has proven time and again
they haven't got a clue when it comes to search.

On the other you have Yahoo who has been in a steady decline
for years and hasn't got a clue when it comes to improving their
search.

What good will combining them do except give Microsoft the
bragging rights that they are now a distant second in search
rather than a distant fourth.

Assuming they keep the Yahoo brand. If they don't, IMO, they
won't gain a thing.

[informvarma]

Interesting statement

"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Microsoft said.

--
Thats an interesting statement considering what they are doing at the desktop market.

[technewsjunkie]

M-O-N-O-P-O-L-Y

If you can't make a better product BUY it.

Microsoft will own the Internet...
It owns the Browser, Office, and the desktop OS.

Too much control, and poor quality products.

[socialgear]

Great Strategy

With all the hype about Facebook, Yahoo's value is weighted in gold, great strategy from Microsoft

[Jim Harmon]

Same old MS strategy...

If you can't beat'em, buy'em.

Yes, this is a move to become more competitve with Google. However, with the exception of the search engine Yahoo has it all over Google when it comes to the other services available.

[KEVIN A LUCAS]

PLEASE BECAREFUL YAHOO

MICROSOFT AND BILL GATES CANT EVEN MAKE A STABLE OPERATING SYSTEM (VISTA) NOW THEY WANT TO RUIN YAHOO! YAHOO DONT DO IT ITS BEEN A GOOD SERVICE FOR YEARS WITHOUT MICROSOFT...........

[new_media_works]

Good Summary - how will IAC, NewsCorp, etc. respond?

Also: How will CNet respond?

;D nmw

ps: very good reporting here (APPLAUSE)

[Rusty Digital Marketing]

Analysis: YaSoft! Good / MicroHoo! Bad

There are enormous synergies in this merger, and many benefits for advertisers.

Yahoo! has a strong consumer franchise, and technically very strong search and advertising match capabilities.

Yahoo! is let down by unfriendly and inefficient processes and services for its advertisers, however, which is why it generates advertising revenues, but is not great at generating good profits.

Digital Marketing blog - YaSoft! or MicroHoo! ?

[Jon N.]

Apple, are you listening?

IMHO, I would really like to see Apple, Inc. offer all people/Platforms/PC's the opportunity to subscribe to their .mac service. It would be a great time for this, and after any M$ acquisition of AT&T/Yahoo would even be better. If it happens (G-d forbid!), I hope it happens before my contract ends. Even if it doesn't, I'm looking for a new DSL service when my contract ends. This is most disappointing news. I, for one, thought that Yahoo was in better shape, especially with their merger with AT&T.

[Danathar]

Google is NOT technically a monopoly

I kinda take issue with the poll question using the word "Monopoly"
in regards to google. Not that I'm taking sides here, but "Monopoly"
is strictly defined and Google does not force anybody to use their
products. If a better search engine came along I'd use it.

[The_Decider]

Typical Microsoft

Shortsighted, non-innovative and lazy.

MS overpaid by a large amount for Aquantive, it hasn't done much so far for the clueless and hapless MS. If Google hadn't gone after Double Click, MS wouldn't have made this deal. It is a classic case of the pathetic "keeping up with the Joneses".

Now to keep up(yet again) with a company who really isn't in the same business as MS, they want to massively overpay for a company in decline?

This makes sense only at MS. Google is not a threat to MS, in fact they are not in the same business.

Microsoft has this pathological need to squash any successful company that is anywhere near where MS lives.

Instead of trying to pay to keep your outdated and dying model going a little bit longer, they might as well start producing innovative work that people want as opposed to the crap they have now that requires unethical and pathetic lock in schemes to keep the money flowing.

Google has many problems, but at least they are still agile, can produce products and services people actually want.

Until MS figures out they will have to work to stay on top, they will be in decline, overpaying for lame companies is not the answer.

[www.hdgreetings.com]

Move Fast

The key will be how fast they can integrate and gain synergies.

For example, will they be able quickly offer single sign in for all services via Open ID?

Many small things like this done quickly can add up to benefits users will care about.

[Renegade Knight]

The Othe Shoe Drops

MS rantings about Google become null and void when MS has exactly the same aspirations.