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Microsoft offers $44.6 billion for Yahoo

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Redmond, Wash.—Microsoft Corp. on Friday announced it has offered to buy Yahoo for a whopping $44.6 billion in cash and stock in an obvious bid to better compete with search engine leader Google. Google currently commands 56% of the Internet search market.

The bid for Yahoo marks the largest deal for Microsoft—and for the Internet space (excepting the 2001 AOL Time Warner merger for $111 billion)—to date, dwarfing the software company’s acquisition of ad network aQuantive for $6 billion last July and last month’s $1.2 billion acquisition of enterprise search firm Fast Search & Transfer.

Microsoft has offered $31 per share for Yahoo, which represents a 62% premium above the closing price of Yahoo common stock on Thursday.

Yahoo said in a statement that its board "will evaluate this 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 online advertising industry is a very large industry today at over $40 billion, and it is forecasted to grow quite rapidly to reach nearly $80 billion in the next three years,” said Kevin Johnson, president, Platform and Services at Microsoft, on a conference call. “Online advertising not only represents a significant growth opportunity, but it is also a critical element of the business model for monetization of consumer Internet services, Internet services we create and Internet services of our partners.”

Johnson also said, “Today the market is increasingly dominated by one player. By combining assets of Microsoft and Yahoo, we can offer a more competitive choice for consumers, advertisers and publishers. The fact is the industry will be better served by having a more credible alternative in areas of search and advertising.”

But Ned May, lead analyst for search at Outsell, a market researcher, disagreed with Johnson.

“It’s bad news because it’s better to have a competitive market for the advertisers looking to display on the Web,” May said. “It turns it into a Google-versus-Microsoft story.”

Yahoo is “pretty strong” despite its recent disappointing earnings, May said.

“Yahoo’s strategically sound despite its stock price. I think it has been unfairly criticized as of late. I’m not sure how [this deal] helps Yahoo in any regard,” May said, adding, “Anyone getting compared to Google is going to pale.”

Additional coverage of the Microsoft bid for Yahoo can be found here at BtoB sibling publication Ad Age.

—Carol Krol

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