Inside The $44.6 Billion Microsoft offering for Yahoo

• Posted: Wednesday, February 06, 2008
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• Author: pradhana
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• Filed under: Gadget, Google, Merger-Acquisition, Microsoft, Yahoo

Microsoft announced Friday a $44.6 billion cash and stock offer to acquire beleaguered Yahoo, a deal that would consolidate the web's largest portal with MSN, the fifth-largest.

Microsoft's $31 per-share bid represents a 62 percent premium over Yahoo's closing stock price on Thursday -- if ratified, the acquisition would herald the biggest Internet deal since the Time Warner/AOL merger, and create a viable threat to the growing web search and advertising supremacy of mutual rival Google.

"Microsoft's consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers," writes Microsoft CEO Steve Ballmer in a statement to the Yahoo board.

In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together. These discussions were based on a vision that the online businesses of Microsoft and Yahoo should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo that we are proposing."

Ballmer's argument for corporate synergy hinges on four areas: Scale economics, expanded R&D capacity, operational efficiencies and emerging user experiences, citing Microsoft and Yahoo's "combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms."

Microsoft said it will offer retention packages to Yahoo engineers and other vital employees throughout the organization. Assuming the merger passes regulatory muster--a major question at this point -- Microsoft said it expects that the deal would be completed in the second half of 2008.

From a mobile software perspective, a Microsoft/Yahoo merger would seem to portend an integrated, applications-rich Windows Mobile platform that would position the so-called "Microhoo" far in front of Google. Given that Microsoft and Yahoo announced interoperability between their IM services almost two years ago, the combined company would also boast a decisive edge in messaging, an area where Google is only beginning to build momentum.

Also noteworthy: In early January, Yahoo opened its fledgling Mobile Developer Platform to third-party applications, promising developers the tools necessary to write code only once for instant publication across the device ecosystem. At the same time, Yahoo also embraced a widget-based mobile UI--weeks later, Microsoft said it will distribute mobile user experience solutions developer Zumobi's Zooming User Interface and mobile widget platform via Windows Mobile-based devices, suggesting a more user-friendly Windows platform could be on its way.

Related articles:
As an Alternative to Microsoft's Bid, Yahoo to Consider Google Alliance.
Microsoft Offers US$44.6 Billion for Yahoo

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