Microsoft's Bid For Yahoo

Microsoft Offers To Buy Yahoo For $31 A Share; Deal Would Be Worth $44.6 Billion; Yahoo Mulling Response
Posted by Eric Savitz

Microsoft (MSFT) this morning offered to buy Yahoo (YHOO) for $31 a share in cash and stock, for combined consideration of $44.6 billion. The offering price is 62% above yesterday’s closing level of $19.18. The proposal is designed to solve two problems at once: Microsoft’s struggles at gaining traction in the Internet search and advertising marketplace, and Yahoo’s gradual loss of market share in those same markets; the deal would unite Google’s (GOOG) two biggest foes into one. Microsoft made the offer via a letter to Yahoo yesterday.

Obviously, this would be the biggest acquisition in Microsoft’s history, far ahead of its $6 billion acquisition of online advertising firm aQuantive. But it is no sure thing: this is a hostile offer, and Yahoo has yet to respond.

This week’s disappointing earnings outlook from Yahoo sent the stock spiraling lower, and triggered speculation on the Street that the company would either find a quick fix or become a potential target for activist investors or an acquisition. And Microsoft was always the most likely merger partner. But I’m not sure anyone expected this to happen so quickly.
Yahoo holders would be able to choose to receive either $31 a share in cash or 0.9509 of a share of Microsoft common stock.

This is not the first time the two companies have discussed a deal. In the letter to Yahoo proposing the combination, Microsoft notes that in February 2007 the Yahoo response to a proposed deal was that “”now is not the right time” for such a transaction.
In a statement, Yahoo said 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.”

In pre-market trading, Yahoo shares are up $10.08, or 52.6%, to $29.26. Microsoft is off $1.44, or 4.4%, to $31.16. Google, which yesterday reported disappointing fourth quarter earnings results, and which traded down in after hours dealings last night, is off $38.39, or 7%, at $525.91.