Microsoft Makes a Play for Yahoo!

Microsoft sees another shot to challenge Google, and it’s taking it:

Microsoft Corp. offered $44.6 billion to buy Yahoo Inc., in a bold attempt to dramatically expand its online business and compete more effectively with Google Inc. in services ranging from email to Internet advertising sales.

The offer was made in a letter sent Thursday by Microsoft Chief Executive Steve Ballmer to Yahoo’s board of directors. One person familiar with the matter said that Microsoft decided to “go hostile” with its bid within the last few weeks after Yahoo ignored its latest overtures.

The offer, $31 a share in cash and stock, is a 62% premium to Thursday’s closing price. Microsoft said Yahoo holders would be able to trade their shares for cash or 0.9509 Microsoft shares a piece, with no more than half of the overall purchase price paid in cash.

The offer may be an attempt to get Yahoo back to the table after the companies held collaboration discussions in late 2006 and early 2007. Those talks included the potential of a merger proposal, but Yahoo told Microsoft in February it wasn’t interest in buyout talk.

An acquisition of Yahoo would give Microsoft massive firepower in its long-running effort to boost its online offerings. The two companies are second and third in the hot area of Web search behind Google and among the top sellers of advertising online. In his letter to Yahoo, Mr. Ballmer said the online advertising market is “increasingly dominated by one player,” a reference to Google. “Together, Microsoft and Yahoo can offer competitive choice while better fulfilling the needs of customers and partners,” he added.

It’ll be interesting to see what Yahoo! does. It previously turned down an acquisition offer from Microsoft, saying it was in the middle of a turnaround (Yahoo!’s CEO Terry Semel left last year, and founder Jerry Yang took back control). But that turnaround has yet to take, and rumors this week say Yahoo! is about to layoff hundreds of employees.

Yahoo! stock is up on the news, Microsoft’s is flat and Google’s is down.

Update: “Google lost $48.40, or 8.6 percent, to $515.90 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest drop since its August 2004 initial public offering.”

Microsoft Makes Bid for Yahoo – WSJ.com (sub. req’d)

Microsoft offers 44.6 billion for Yahoo! – AP via Yahoo!

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