Microsoft Offers $44.6 B for Yahoo

123jump.com Staff
01 Feb, 2008
New York City

Microsoft offers $31 per share or $44.6 billion for Yahoo after it failed to convince Yahoo management of a friendly takeover. Yahoo stock jumped 50% after the offer from Microsoft. Microsoft bid reflects its desparation to catch in the online ad space which has been dominated by a one player, Google. The expensive offer may take years to pay. The takeover if successful, will be the second largest in the techonology sector.

[R]10:30AM New York – Microsoft offers $44.6 billion or $31 per share for Yahoo in the second largest technology merger ever.[/R]

Microsoft ((MSFT)) offered $31 per share to Yahoo! Inc shareholders in a bid to accelerate its Internet strategy that has faltered as Google dominates search business. The surprise and expensive bid comes after Microsoft efforts to gain traction in the online ad business from the chief executive of Microsoft Steve A. Ballmer to catch up in the fast growing Internet search business.

Microsoft offer values Yahoo ((YHOO)) at $44.6 billion and the offer will 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% premium above the closing price of Yahoo! common stock on Jan. 31, 2008.

Microsoft made hints at domination by one rival, Google, in the search space, and talked about combining programming resources between the two companies.

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.”

The online advertising is rapidly evolving from a niche marketing platform and is likely to grow from $40 billion in 2007 to $80 billion in 2010. Ballmer added, “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 letter published on the Microsoft investor relations page highlighted the strength of the combined research and development but failed to acknowledge that Microsoft lags considerably behind Google and Yahoo in search related business.

Yahoo, has never been a technology company and has always focused on extending its reach through several well timed acquisitions in the past. This strategy had served well until Yahoo stock was rising and each acquisition added new traffic and features and increased earnings. With the stock struggling in the last three years, and weak earnings in the last five quarters, Yahoo has failed to leverage its growing presence in email, online job search, directory, and personal space.

Yahoo’s failure to leverage its Inktomi acquisition to build its search technology was exploited by Google in the last seven years. Google continues to garner lion share of search related queries on the Internet. Estimates for the market share range from a low of 60% to as high as 76% for Google in the search business.

Yahoo’s inability to develop it online ad serving system, named Panama, led to the departure of its then chief executive Terry Semel.

Yahoo in the past has powered its growth through several well times acquisitions. Its own efforts to build search and social networking, and online market places and related technologies had mixed success.

Yahoo has faltered in the search business but it has some valuable strategic assets in Asia and Europe. In Asia Yahoo has a minority stake in Yahoo Japan and in recently listed company in Hong Kong, Alibaba.com. In Europe Yahoo has gained a significant presence in the UK market. Yahoo’s stake in Asian ventures is worth at least $10 per share.

Yahoo stock has struggled in the last three years as it has faced significant challenges in retaining its key executives.

Yahoo ((YHOO)) has traded between $19 and $39.90, since the company split the stock 2 for 1 on May 7, 2004.