Microsoft Friday unveiled a bid of 44.6 billion dollars for Yahoo in an effort to merge the world’s biggest software company with a major Internet player to take on the Google juggernaut.
The deal could reshape the landscape for high technology by combining Microsoft and one of the leading brands on the Internet.
“We are very confident this is a right path for Microsoft and Yahoo,” Microsoft chief executive Steve Ballmer said in a conference call with analysts and reporters after the unsolicited bid was unveiled.
“We are very committed to this. When you combine the strengths of our two companies, the result will be an incredibly competitive enterprise.”
Ballmer said he called Yahoo co-founder and chief executive Jerry Yang on Thursday night to discuss the offer.
Yahoo said it was examining the “unsolicited proposal” and added 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 move comes as Yahoo is losing ground rapidly in the Internet space to Google, the search leader which has been able to cash in on the growing market for online advertising.
Microsoft said the booming online advertising market “is increasingly dominated by one player” — a reference to Google — and suggested that with Yahoo under its wing it could better compete in the bonanza.
Online advertising sales will double from 40 billion dollars in 2007 “to nearly 80 billion in 2010,” it forecast.
Yahoo would offer Microsoft a search engine to compete with Google, a popular web portal for email, shopping and news, as well as one of the most recognized brands among online users.
Microsoft said a combination of the companies would lead to cost savings of 1.0 billion dollars per year. Ballmer said engineering talent would be combined for more extensive research.
In a letter to Yahoo’s directors, dated Thursday and released with its statement, Microsoft revealed that Yahoo, based in Sunnyvale, California, had rebuffed earlier acquisition overtures in February of 2007.
Microsoft said it had proposed 31 dollars per share to Yahoo’s board, amounting to 44.6 billion dollars, or a 62 percent premium above the closing price of Yahoo on Thursday.
“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 Ballmer.
The announcement came a day after Yahoo chief executive Terry Semel left the Internet firm’s board of directors.
Yahoo had announced plans two days earlier to lay off 1,000 employees as part of an effort to revitalize a company that analysts say strayed from its profitable strengths while Semel was at the helm.
Yahoo has been hit by sluggish revenue growth despite launching a new online advertising platform a year ago and having hundreds of millions of users worldwide.
Under the Microsoft offer, Yahoo shareholders can elect to receive cash or a fixed number of shares of Microsoft stock, with its total offer consisting of half cash and half stock.
Microsoft said it believed the proposed combination would get a stamp of approval from regulators and be completed in the second half of 2008.
“We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners,” Balmer said.
Yahoo reported that its profits dipped to 206 million dollars in the final three months of 2007 but still topped expectations of Wall Street analysts.
Yahoo reported its revenues for 2007 climbed eight percent to 1.8 billion dollars compared with revenues in the prior year.
However, Yahoo’s net profit for 2007 was 660 million dollars compared with 751 million in 2006.
Microsoft and Yahoo had been reported in May to be exploring a merger or alliance to better compete against Google, but no deal materialized.