— Microsoft Corp. revealed plans for a surprise $44.6-billion (U.S.) cash and stock takeover offer for struggling Internet search pioneer Yahoo! Inc., in a move that would not only dramatically increase its share of the global Web search business but would have serious implications for top dog Google Inc.
The world's largest software company made the announcement Friday morning after sending a letter to the Yahoo board of directors dated Jan. 31. Microsoft is offering Yahoo shareholders $31 per share for all outstanding share of Yahoo! common stock, which represents a 62 per cent premium above the price that Yahoo! shares closed at last night.
Yahoo confirmed that it had received the offer and said its board would consider the deal.
Yahoo said in a statement that its board would evaluate the 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 announcement sent Yahoo's share price up 43 per cent by noon in New York, up $8.45 to trade at $27.63. Google shares meanwhile fell more than 8 per cent, losing $48.80 to trade at $515.50. Microsoft shares were off 6 per cent, at $30.65 a share.
"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 chief executive Steve Ballmer said in a statement. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."
Both Yahoo and Microsoft trail Google in overall Internet searches and advertising revenues generated from keyword-based search advertising and have struggled to catch up. While Microsoft has recently made a series of investments dedicated to building its online search-based advertising business — most notably the $240-million agreement it struck with the social networking company Facebook Inc. in September — Yahoo has floundered as it has begun to emphasize a push towards the mobile search market.
In a conference call with analysts, Mr. Ballmer called the proposed deal "the next major milestone in Microsoft's company-wide transformation to embrace on-line services over all."
Microsoft and Yahoo, he said, "really do share a vision of the potential of on-line search and advertising" and combining the two companies will result in "an incredibly efficient and competitive offering for consumers, for advertisers and for publishers."
He said Microsoft has been talking to Yahoo management about a deal "off and on for 18 months," but that Yahoo said a year ago that "it wasn't really the right time" to discuss an acquisition.
"We believed then in the benefits of combining the two companies and we believe now in those benefits more than ever," he said. "We're very confident [this] is the right path for Microsoft and Yahoo."
He also dismissed with a curt "no" an analyst's question as to whether this means Microsoft would halt plans for other major acquisitions in such areas as enterprise software.
Asked during the call about potential competing bids, perhaps from media companies, Microsoft corporate counsel Brad Smith said "obviously any number of companies might have an interest."
However, he also said Microsoft has made a "very compelling offer" and that "the reaction from publishers, which includes a lot of the media companies, has been very positive.
"We've been getting unsolicited feedback this morning from advertisers and publishers that this . . .will create a more compelling competitor in the marketplace."
The one company not in a position to launch a rival bid, Mr. Smith argued, is Google, which, he said already has a nearly 75 per cent share of the world-wide market for on-line paid search.
