Breaking: Microsoft Makes $45 Billion Bid to Buy Yahoo!

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Wow. Microsoft just issued a press release stating they will be making a $45 billion bidding proposal to buy Yahoo! at $30 per share — a 62% premium on the share price of Thursday. As part of the deal, current Yahoo! shareholders will be able to choose whether to receive cash or fixed Microsot common stock.

If the sale goes through, it will be the Internet’s largest merger since AOL/TimeWarner, and among the biggest ones in history no doubt. This will mean the Internet will spell of one company: Microsoft. Imagine Yahoo! Mail, MSN, Hotmail, Yahoo! News, Windows Live, MSN Messenger, Yahoo! Messenger, MSN Search, Yahoo! Search, Flickr,, Zimbra, Tellme, Bill Gates, Jerry Yang, Susan Decker, Steve Ballmer, Sunnyvale, and Redmond, and now combine them together — the scale of this is hard to grasp. Something smells of a monopoly.

To Google, this will be a threat at a level it’s never faced before. After yesterdays earnings, I’m sure they’re worrying their pants off to the bank. When it comes to search market share, Microsoft + Yahoo! will own a 27% pie to Google’s 68.1%. Low in comparison, yet for Microsoft a huge 17% gain on its 9% with MSN and Windows Live Search. In their respective advertising properties, the Microsoft-Yahoo! duo will give Google-DoubleClick a good run for its money. And as for their respective sub-services — namely e-mail and news — MicroYahoo will undoubtedly lead the pack.

Release is copied below, full version here, conference call starting soon, I’ll be updating this post as things happen.

REDMOND, Wash. — Feb. 1, 2008 — Microsoft Corp. (NASDAQ:MSFT) today announced that it has made a proposal to the Yahoo! Inc. (NASDAQ:YHOO) Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008.

“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,” said Steve Ballmer, chief executive officer of Microsoft. “We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners.”

“Our lives, our businesses, and even our society have been progressively transformed by the Web, and Yahoo! has played a pioneering role by building compelling, high-scale services and infrastructure,” said Ray Ozzie, chief software architect at Microsoft. “The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own.”

The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners.

“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,” said Kevin Johnson, president of the Platforms & Services Division of Microsoft. “The industry will be well served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers.”

The combination will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.

Microsoft has developed a plan and process that will include the employees of both companies to focus on the integration of the combined business. Microsoft intends to offer significant retention packages to Yahoo! engineers, key leaders and employees across all disciplines.

Microsoft believes this proposed combination would receive all necessary regulatory approvals and expects that the proposed transaction would be completed in the second half of calendar year 2008.

Microsoft is also committed to working closely with Yahoo! management and its Board of Directors as they, along with Yahoo! shareholders, evaluate this compelling proposal.

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