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Microsoft makes US$44.6 billion bid for Internet icon

Microsoft Corp is making an unsolicited US$44.6 billion offer for internet icon Yahoo Inc in a move to boost its competitive edge against Google Inc in the online services market.

Yesterday's announcement comes as Yahoo and Microsoft have fallen behind Google in the race to capture online advertising dollars.

The announcement sent Yahoo's share price up 54 percent in premarket trading, while Google fell 8 percent.

In a letter to Yahoo's board of directors, Microsoft chief executive Steve Ballmer said the company will bid US$31 per share, representing a 62 percent premium to Yahoo's closing stock price on Thursday.

Since reaching a 52-week high of US$34.08 in October, Yahoo shares have fallen 46 percent. Yahoo climbed US$10.27 to US$29.45 in premarket trading.

Ballmer said in the letter that Yahoo had told the world's biggest software company a year ago that the Yahoo board felt it was not the right time to enter into discussions regarding a deal.

"According to that letter, the principal reason for this view was the Yahoo board's confidence in the `potential upside' if management successfully executed a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment," he said.

"A year has gone by, and the competitive situation has not improved," Ballmer said.

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50 percent each cash and stock.

Microsoft said it sees at least US$1 billion cost savings generated by the merger, and intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant said it believes the takeover would receive regulatory clearance and close in the second half of of this year.

Ballmer said Microsoft expects Yahoo's board will review its proposal, but "reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal."

Also see: Former Yahoo chief Semel leaves board of directors
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