Microsoft Buying Yahoo and offers $44.6 BILLION

Microsoft and Yahoo in recent months discussed a possible merger of the two companies or some kind of match-up that would pair their respective strengths, say people familiar with the situation. But the merger discussions are no longer active, these people say. The two companies may still explore other ways of cooperating.

Nothing like a bit of rumor and speculation to kick-off a Friday. The New York Post is reporting that Microsoft is tired of losing out to Google and is trying to re-start acquisition talks with Yahoo.

The new approach follows an offer Microsoft made to acquire Yahoo! a few months ago, sources said. But Yahoo! spurned the advances of the Redmond, Wash.-based software giant. Wall Street sources put a roughly $50 billion price tag on Yahoo!.

It makes sense on a number of levels. Microsoft and Yahoo combined, might have a chance of actually competing with Google as they would hold a combined search advertising market-share of 27%. That’s still a long way from Google’s 65% share, but it’s a whole lot better than they have now.

Microsoft would certainly benefit from placing all of its online advertising efforts under the Yahoo brand, while Yahoo could help bring it’s younger audience to MSFTs other products such as the Xbox and Office.

Still, with cost savings comes redundancy. Both Yahoo and Microsoft have recently spent hundreds of millions (billions?) in developing their own search marketing platform. They wouldn’t need both, so would they ditch one in favor of the other? More likely, they’d combine the best parts of each and create a more stable challenger to Google’s AdWords. For example, Yahoo’s algorithm and console would be my pick, with Microsoft’s audience demographics being a welcome addition.

Speaking of demographics. As the NYP points out, Yahoo has the attention of the younger crowd, while Microsoft’s is older and more business oriented, so they’d compliment each other very well.

How likely is this merger? Who knows? A $50 billion price tag is a steep price to pay, to simply take a few steps closer to Google. Both Microsoft and Yahoo opened the anti-trust can of worms, by complaining about Google’s DoubleClick acquisition, so it will be hard to shove those worms back in the canister, if they try to move forward with their merger.

Finally, Yahoo CEO Terry Semel’s career is certainly resting on the success of Yahoo to successfully compete with Google, now that Panama is deployed. If he has any indication that things aren’t going too well, selling to Microsoft would be an easy exit and he’d walk away as the man that grew Yahoo to one of the most powerful online players, negotiating one of the largest mergers in history. That would look a whole lot better, than consecutive quarters of failing to compete against Google.

Microsoft wants to buy it for $44.6 billion..

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50 percent each cash and stock.

Microsoft said it sees at least $1 billion cost savings generated by the merger, and intends to offer significant retention packages to Yahoo engineers, key leaders and employees. The software giant said it believes the takeover would receive regulatory clearance and close in the second half of 2008.

Now here’s the thing. This could become a hostile takeover very quickly. Microsoft CEO Steve Ballmer is already taking shots at Jerry Yang et al’s attempts to revitalize the company, saying “A year has gone by, and the competitive situation has not improved.”

Microsoft also predicts Yahoo’s board will turn down the offer. The Redmond software company is already trying to influence Yahoo’s stock holders by saying it “reserves the right to pursue all necessary steps to ensure that Yahoo’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”

This really is the case of deciding which is the lesser of two evils here. I can understand why Yahoo might not want to join the ranks of Microsoft, but on the other hand, the company continues to struggle and there are few suitors that could make such a generous offer.

On the other side of the equation. Will buying a company that has failed to stand up to Google in any way, help Microsoft–which has equally poor performance. Do two losers, make a winner?

Tell me what do you think how this will affect bloggers around the world?


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