Post $44.6 billion offer from software giant Microsoft Corp., Yahoo! Inc. has stated that its Board of Directors "will evaluate this proposal carefully and promptly in the context of Yahoo!'s strategic plans and pursue the best course of action to maximise long-term value for shareholders."

Published: 05 Feb 2008

Post $44.6 billion offer from software giant Microsoft Corp., Yahoo! Inc. has stated that its Board of Directors "will evaluate this proposal carefully and promptly in the context of Yahoo!'s strategic plans and pursue the best course of action to maximise long-term value for shareholders."

Microsoft made an unsolicited $44.6 billion bid for Yahoo! in an attempt to further consolidate the web advertising industry and create a credible competitor to Google.

In a posting on the company's website, Yahoo said it was undertaking a deliberate review of Microsoft's unsolicited offer, under which Yahoo! stockholders could elect to receive either $31 in cash or 0.9509 of a Microsoft share per share. The total consideration would consist of one-half cash and one-half Microsoft common stock.

The posting on the Yahoo! site also noted that "A review process like this is fluid, and it can take quite a bit of time."

In response to a frequently asked question about whether Yahoo would seek proposals from other companies, the company said it was going to evaluate all options.

According to analysts, the possible bidders include Comcast Corp (CMCSA), Viacom Inc (VIA) and General Electric Co (GE).

Microsoft went public with the offer, a mix of stock and cash that is 61% higher than Yahoo!'s current stock price, after Yahoo! executives rebuffed entreaties to discuss uniting, according to Microsoft. The deal is half cash, half stock.

"Today the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Microsoft CEO Steve Ballmer wrote in a letter to Yahoo!'s board of directors. "Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers and publishers."

Combined, Yahoo! and Microsoft would have 32% of the US search market, per comScore. Google has 59%. According to a recent report by Efficient Frontier, Google took in 97% of the growth in search advertising in the fourth quarter.

According to Ballmer's letter, Yahoo! rejected Microsoft's acquisition overtures with the rationale that its efforts to turn around the company would yield greater value. Ballmer questioned whether Yahoo! has made progress on this front, noting that its new search ad system hasn't paid off, reported adweek.com. The site added: In laying out its rationale for the deal, Microsoft emphasized the overwhelming need for scale to compete in the digital ad market. Google has seen success in using its enormous computer infrastructure, combined with its huge base of users, publishers and advertisers creating a "virtuous cycle" of continued growth.

"The combined assets and strong services focus of these two companies will enable us to achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs," he said. "The industry will be well-served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers."

On top of that, Microsoft said the combination would result in $1 billion in cost savings.