Microsoft Throws Yahoo $44.6B Bouquet

2/01/2008 7:00 PM Eastern

In a deal that would bring together two of the Internet's largest video distributors, Microsoft Friday offered $44.6 billion in cash and stock to purchase the Web portal Yahoo.

Primarily, Microsoft launched the unsolicited bid for Yahoo to counter Google, which bests them both in online advertising and audience. Google, Microsoft and Yahoo sites rank first, second and third in terms of unique visitors each month worldwide, according to ComScore.

Yahoo competes head to head with Google to help advertisers place their messages to carefully chosen Web audiences. But analysts said a key element of Microsoft's longer-term rationale is to secure a stronger position in online video.

“I think Microsoft is not going to make broadband video No. 1 on their priority list, but I think strategically it's the area that has the most upside,” said Will Richmond, president of consulting firm Broadband Directions.

The combo would still fall behind Google, whose YouTube and other video sites had 76.2 million unique visitors in November 2007, compared with 65.8 million for Microsoft and Yahoo video sites, according to ComScore.

But Microsoft, in eyeing the tie-up with Yahoo, wants to create a larger pool of viewers for professionally produced video content, according to Richmond.

“There's limited high-quality inventory for big brands,” he said. “They don't want to buy the [user-generated content] stuff that the Internet is awash in.”

Microsoft said that by combining with Yahoo, it could save $1 billion annually in four areas: larger audience “critical mass”; combined engineering talent; elimination of redundant operational costs; and the ability to “innovate in emerging user experiences,” such as video and mobile content.

Under the terms of the proposal, announced Feb. 1, Microsoft would acquire all the outstanding shares of Yahoo common stock for $31 per share, consisting of half cash and half Microsoft stock. The Microsoft offer was a 62% premium over the $19.18 closing price of Yahoo's stock last Thursday.

Yahoo said its board would “evaluate this proposal carefully and promptly.”

Microsoft CEO Steve Ballmer said in a statement that with Yahoo, “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.”

The deal requires the approval of Yahoo's board, as well as government regulators. Microsoft said it hopes to complete the acquisition in the second half of calendar year 2008.

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