Microsoft Bids $44.6B for Yahoo; Targets Google
The rumors are reality. On Friday, Microsoft revealed it has made a $44.6 billion offer for Yahoo. Microsoft's offer equals $31 a share, a 62 percent premium to Yahoo's closing stock price on Thursday, with half cash and half Microsoft common stock.
The acquisition would be Microsoft's largest, would offer relief to Yahoo shareholders who have watched the search-engine giant's stock struggle, and would give Google a fierce competitor for advertising. Yahoo officials could not immediately be reached for comment on the offer, which came in the form of a letter to Yahoo's board of directors.
"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," Microsoft CEO Steve Ballmer said. "We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."
The Advertising Game
The online advertising market is growing fast, from more than $40 billion in 2007 to nearly $80 billion projected by 2010. Today this market is increasingly dominated by one player: Google.
"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," said Ray Ozzie, chief software architect at Microsoft. This combination has been rumored for some time, and Microsoft talked with Yahoo last year about alliances or a merger. But Yahoo declined to be acquired. This year, the response may be different.
As Microsoft sees it, the merger would create a more efficient company with synergies in four areas: scale economics driven by audience size and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies by eliminating redundant costs; and innovation in emerging user experiences such as video and mobile. Microsoft believes these four areas could be worth at least $1 billion a year.
"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."
A Brand New Yahoo
Yahoo's stock jumped nearly 60 percent in pre-market trading Friday morning, reflecting investors' positive reaction to the proposed acquisition. Even though Yahoo's stock has been battered in recent quarters, Microsoft's offer is a statement of the Internet brand's inherent value, according to Greg Sterling, principal analyst at Sterling Market Intelligence.
"Yahoo is still one of the largest sites on the Internet and Microsoft is recognizing that acquiring the company would accelerate its Internet business in a way that it could not do on its own without this acquisition," Sterling said, noting that Microsoft's offer could flush out other bidders, including Google, AT&T or News Corp.
Even if Yahoo declines Microsoft's offer, Sterling said, Yahoo is not going to be the same company after today.
"A process has started that will change the company forever," Sterling noted. "We're either going to see a Microsoft acquisition, an acquisition by some other company, or a strategic relationship that Yahoo enters into. But we won't see the exact same Yahoo going forward that we saw yesterday."
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