World News: Microsoft goes after Yahoo! with $44.6bn

World News:  Microsoft goes after Yahoo! with $44.6bn

Microsoft has submitted a proposal to acquire Yahoo! for approximately $44.6 billion, representing a 62% premium above the closing price of Yahoo! common stock on January 31, 2008.

Microsoft’s proposal would allow 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.

Ray Ozzie, chief software architect at Microsoft, said: “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 more than $40 billion in 2007 to almost $80 billion by 2010. Today this market is increasingly dominated by one player – Google.

Yahoo! has missed a few opportunities in the past:

  • Google paid $900 million for the right to be the exclusive provider of text-based and keyword targeted ads on MySpace.
  • Google also bought DoubleClick for $3.1 billion and YouTube for $1.65 billion.
  • Microsoft bought aQuantive for $6 billion – 64% above premium, and bought a stake in Facebook for $240 million as part of an ad deal.
  • WPP Group bought 24/7 Real Media for $649 million.

Yahoo! responded by buying RightMedia for $680 million.

While Microsoft’s offer of $31 per share looks generous on the surface, it’s the timing that makes the difference. Yahoo! shares closed at $19.18 yesterday, from a high of $33.63 at the end of October 2007.

The market response to Microsoft’s announcement was a jump in the price of Yahoo! shares, with a high today (at the time of writing) of $29.83.

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