Updated: Microsoft bids $44.6 billion for Yahoo

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Microsoft has announced a $44.6 billion bid for Yahoo - at $31 per share, a 62 per cent premium of the web firm's closing price yesterday.

Microsoft said it intends to offer significant retention packages to engineers and other employees across Yahoo. Yahoo has previously announced job cuts to some 10 to 20 per cent of their staff base - it's unknown how the Microsoft bid will affect those plans.

This is not the first time Microsoft has made such a move. In the proposal letter to the Yahoo board, Microsoft said the two companies had considered previous alignments and partnerships as alternatives to a merger, but added that all have so far been rejected by Yahoo.

The letter also showed that the Yahoo board indicated in February of last year that it was not a good time to consider an acquisition. Yahoo has not yet responded to the proposal at the time of publishing.

Microsoft said that bringing the two firms together would create a billion dollars in synergies through economies of scale, combined engineering talent, cutting costs through redundancies, and the ability to invest in innovations in video and mobile.

"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 and 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 software giant noted that the online advertising market - currently lead by Google - is set to grow from $40 billion in 2007 to $80 billion in 2010. The ensuing benefits of scale mean that now is the right time for consolidation and convergence, the firm said.

In a letter to Yahoo's board of directors, Microsoft said: "Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers, and publishers."

Microsoft also claimed the tie-up would boost competition in the online market and offer more choice to consumers. "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."

Praising Yahoo as an online pioneer, Microsoft said a tie-up would lead to further innovations. "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."

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