Microsoft Corporation, the world’s biggest software maker, made an unsolicited $44.6 billion offer for Yahoo to challenge Google’s dominance in Internet search services and advertising.
Yahoo says it will consider $44.6 bn offer, the biggest in IT business, “carefully”
SAN FRANCISCO: Microsoft Corporation, the world’s biggest software maker, made an unsolicited $44.6 billion (about Rs1,75,000 crore) offer for Yahoo to challenge Google’s dominance in Internet search services and advertising.
Yahoo confirmed the bid and said that its board would evaluate the proposal “carefully and promptly in the context of Yahoo’s strategic plans and pursue the best course of action to maximise long-term value for shareholders.”
The $31-a-share bid of cash or Microsoft shares is 62% more than Yahoo’s closing price on Thursday. Yahoo dropped 18% this year in Nasdaq Stock Market trading, and posted a 23% profit decline in the fourth quarter on January 29.
Microsoft’s chief executive officer Steve Ballmer is attempting the biggest-ever technology takeover after failing to compete with Google in a market that may almost double to $80 billion by 2010. Google’s growth has outstripped the pace set by Redmond, Washington-based Microsoft in every quarter since Google’s 2004 initial public offering.
“Microsoft is under pressure to expand its Internet business and this deal shows how desperate they are,’’ said Thomas Radinger, a fund manager at Pioneer Investments in Munich, which oversees about $95 billion, including Microsoft shares.
“It’s a huge gamble as the price is very steep and it will take years to integrate such a massive acquisition.’’
Yahoo shares rose 59% to $30.41 in early trading on Friday after closing at $19.18 the previous day. Microsoft fell $1.85 to $30.75 after closing at $32.60 on Thursday. Google fell 6.1% to $530.11.
Yahoo’s inability to crack Google’s dominance in search has led to eight straight quarters of declining profit and a stock that’s lost half its value in the past two years.
“It shows how serious the threat is from Google,’’ Jordan Rohan, an analyst at RBC Capital Markets in New York, said in an interview. “Yahoo is vulnerable. Investors are losing patience with the Yahoo management team.’’
Google captured 56% of US web queries in December, almost double the combined share for Yahoo and Microsoft, which attracted 18% and 13%. Searches will account for 37% of the $27.5 billion US online advertising market in 2008, estimates research firm EMarketer Inc.
Yahoo has also lost sales in the market for graphical, or display, ads to social-networking sites like Facebook Inc and News Corp.’s MySpace. Co-founder Jerry Yang replaced Terry Semel as chief executive officer in June to reignite sales growth.
Microsoft and Yahoo explored ways to work together in late 2006 and early 2007, according to a letter Ballmer sent to the Yahoo board. Yahoo rejected the idea of being taken over by Microsoft a year ago, the letter said.
“While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing,’’ the letter said. “This proposal represents a compelling value realisation event for your shareholders.’’
Yahoo was founded by Yang and David Filo while the two were graduate students at Stanford University in 1995. The co-founders, who own a combined 9.8% of Yahoo’s stock, took the company public a year later. After a three-year jump in the stock price, they were each worth $4 billion, according to Forbes Magazine. Then the dotcom boom collapsed, and Yahoo’s value crashed 86% in 2000.
The purchase would be the largest acquisition ever in the technology industry, surpassing KKR & Co.’s $26 billion acquisition of First Data Corp. last year, according to data compiled by Bloomberg.
In October, Microsoft agreed to pay $240 million for a 1.6% stake in Facebook, the second-most visited social-networking site, in a bid to gain future ad spending as popularity surges.
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