SAN FRANCISCO, 2 February 2008 — Microsoft made a bid to buy Yahoo for $44.6 billion, seeking to join forces against Google in what would be the biggest Internet deal since the Time Warner- AOL merger.
In its boldest-ever acquisition move, Microsoft sent a letter to Yahoo’s board on Thursday night to offer $31 per share in cash and stock, a 62 percent premium over the Internet media company’s Nasdaq closing stock price that day.
Yahoo would give Microsoft dominance in Web banner ads used by corporate brand advertisers. It also attracts more than 500 million people monthly to sites devoted to news, finance and sports, and Yahoo Mail is the No. 1 consumer e-mail service. “Microsoft’s wanted to do things that could build up its online business dramatically,” said Pacific Crest analyst Brendan Barnicle. “This is going to be a big bet for them.”
Yahoo said yesterday its board will evaluate the unsolicited offer. Its shares shot up 47.45 percent to $27.29, while Microsoft shares, which have a market capitalization of about $300 billion, fell 6.38 percent to $30.52.
Speculation of a tie-up has swirled in the markets for more than a year, as investors looked to Microsoft to team up with Yahoo against an ever more powerful Google, which owns about two-thirds of the global Web search market.
But critics say Microsoft and Yahoo have very different corporate cultures and worry about a clash like the one that marred AOL’s $182 billion purchase of Time Warner Inc in 2001, which is seen as the worst merger in recent history, with many of the promised synergies never materializing.
The perception is that Yahoo, an iconic Silicon Valley company with a free-flowing, fun-loving attitude, may not fit in with the button-up, competitive Microsoft, the world’s biggest software maker.
The two companies also have many overlapping businesses — from instant messaging to email and advertising, as well as news, travel and finance sites — but are both weak in the Web search market, where Google dominates.
Google has a 77 percent share of the global Web search market, while Yahoo is second with 16 percent and Microsoft is a distant third with 3.7 percent, according to comScore data.
“They have to do it because they’ve tried everything they can do to fix MSN,” said Piper Jaffray analyst Gene Munster. But he added: “Google is running away with the search market and that’s obviously the best part of the market. The likelihood that Google gets caught is slim to none.”
Microsoft Chief Executive Steve Ballmer told analysts on a conference call the deal would transform its money-losing Internet division, which it sees as critical to growth, into a profitable pillar of its business. “We have been losing money. Our plan here would be to not lose money in the future,” Ballmer said.
Ballmer said Microsoft has had on-and-off talks with Yahoo for 18 months, but was told by management a year ago that the timing was not right — in an apparent reference to Yahoo’s then Chairman and Chief Executive Terry Semel. Semel was replaced by Yahoo co-founder Jerry Yang as CEO in June and resigned as chairman on Thursday.
