Microsoft Corp. has pounced on slumping Internet icon Yahoo Inc. with an
unsolicited takeover offer of $44.6 billion in its boldest bid yet to challenge
Google Inc.s dominance of the lucrative online search and advertising markets
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The surprise offer of $31 per share, made late Thursday and announced Friday,
seizes on Yahoos weakness while Microsoft tries to muscle up in a highstakes
battle with Google likely to define the technology landscape for years to come.
In a statement Friday, Yahoo said it will "carefully and promptly" study
With its profits steadily sliding, Yahoos stock slipped to a fouryear low
earlier this week and a new management team has been trying to steer a
turnaround but sees more turbulence through 2008.
The announcement lifted Yahoos share price by almost 50 percent in morning
trading, while Google fell more than 8 percent, dragged down by a fourthquarter
earnings report that missed Wall Street expectations.
In conference call Friday morning, Microsoft Chief Executive Steve Ballmer
indicated he wont take no for an answer after Yahoo rebuffed takeover overtures
a year ago.
"This is a decision we have and I have thought long and hard about,"
Ballmer said. "We are confident its the right path for Microsoft and Yahoo."
Besides the question of Yahoos acceptance, Microsofts bid also faces
regulatory scrutiny in Washington and Europe. On Friday, the Justice Department
said it is "interested" in reviewing antitrust issues. European Union officials
declined to comment.
To underscore its resolve, Microsoft is offering a 62 percent premium to Yahoos
closing stock price Thursday. If the deal is consummated, it would be by far the
largest acquisition in Microsofts history, eclipsing last years $6 billion
purchase of online ad service aQuantive.
Since reaching a 52week high of $34.08 in October, Yahoo shares have fallen 46
percent. Yahoo climbed $8.62 a share, or 45 percent, to $27.80 in afternoon
trading. Microsoft shares fell $2.22, or 6.8 percent, to $30.38.
Microsoft publicly disclosed its cashandstock offer in hopes of rallying
support from Yahoos shareholders, making it more difficult for Yahoos board to
turn down the bid.
In a letter released Friday, Ballmer pointedly noted Yahoos financial
performance has deteriorated since Microsoft was spurned a year ago. At that
time, Ballmer said he was told Yahoo believed it was better off on its own.
"A year has gone by, and the competitive situation has not improved," Ballmer
wrote in his letter.
Microsofts previous offer was rebuffed by Terry Semel, who stepped aside last
year as chief executive under shareholder pressure.
Microsoft sent its latest takeover offer to Yahoo late Thursday, shortly after
Semel resigned as the companys chairman. The letter is addressed to Semels
successors, new Chairman Roy Bostock and the current CEO, cofounder Jerry Yang,
who is one of Yahoos largest shareholders.
In a prepared statement, Yahoo said its board "will evaluate this proposal
carefully and promptly in the context of Yahoos strategic plans and pursue the
best course of action to maximize longterm value for shareholders."
Microsoft views Yahoo as its best chance to thwart Google, which has leveraged
its leadership in Internet search and advertising to emerge as an increasingly
serious threat to the worlds largest software makers persuasive influence on
how people interact with computers.
Google already controls nearly 60 percent of the U.S. search market, and has
been widening its lead, despite concerted efforts by both secondplace Yahoo and
thirdplace Microsoft. By combining, Microsoft and Yahoo would have a 33 percent
share of the U.S. search market, according to the latest data from comScore
By joining forces, Microsoft and Yahoo also would widen their narrowing
advantage over Google in providing free email accounts a service that helps
foster more loyalty with users and create more advertising opportunities.
Advertisers around the world are expected to double their spending on the
Internet during the next three years as more people get their news and
entertainment on the Web instead of television, radio, newspapers and magazine.
The trend is expected to create an $80 billion online ad market in 2010, up from
an estimated $40 billion last year.
Despite an aggressive push in recent years, Microsofts online advertising
expansion hasnt paid off. Last week, the Redmond, Wash.based company reported
a 79 percent jump in its overall profit, but its online divisions loss widened
to $245 million.
And Yahoo has been struggling to attract more advertising even though its Web
site attracts one of the biggest audiences. The Sunnyvalebased companys profit
has declined for five consecutive quarters, prompting plans to cut 1,000 jobs
later this month, a 7 percent reduction of its 14,300employee work force.
Besides helping to boost its online ad revenue, Microsoft believes it could mine
more profit from Yahoo by jettisoning workers and eliminating overlapping
Microsoft said it sees at least $1 billion in cost savings if it buys Yahoo.
Microsoft executives deflected questions about how many jobs might be lost, but
the company emphasized retention packages will be offered to Yahoo engineers and
other key employees, including some executives.
The fate of Yahoos brand also is unclear if Microsoft takes over. Both Ballmer
and Kevin Johnson, president of Microsofts platforms and services division,
hailed Yahoos strong brand value but didnt commit to keeping the name alive.
AP Business Writer Jennifer Malloy in New York and AP Business Writer Jessica
Mintz in Seattle contributed to this story.