Microsoft Makes Case for Blockbuster Yahoo Deal

• By Jeffrey Schwartz
• 02/01/08

Microsoft today has made a surprise bid to acquire Yahoo Inc. for a $44.6 billion, a 62 percent premium over the company's closing share price Thursday.

The offer, announced early Friday morning, would be Microsoft's largest ever, if not one of the largest ever in the computer industry.

If the proposed deal were to be consummated, which is not a certainty, it would also create the most formidable assault yet on Google, which dominates online search and ad serving.

"By combining assets of Microsoft and Yahoo, we can offer a more competitive choice for consumers, advertisers and publishers," said Kevin Johnson, president of Microsoft's platforms and services division, speaking on a conference call this morning announcing the company's bid.

As of now, it remains to be seen whether Yahoo will accept the bid. Yahoo issued a statement saying its board will evaluate the "unsolicited" bid and respond promptly. Even if Yahoo were to accept that offer or a sweetened bid, it also is uncertain what type of scrutiny a deal would get from domestic and foreign regulators. It also remains to be seen if other bidders will emerge.

"We are very confident it's the right path for Microsoft and for Yahoo," Microsoft CEO Steve Ballmer said on this morning's call, saying he called Yahoo chairman and CEO Jerry Yang.

Ballmer admitted that Microsoft has had an interest in acquiring Yahoo for about 18 months, and that one year ago, Yahoo said it was not ready to pursue such a merger. "When you combine the strengths of our two companies, the result will be an incredibly efficient and competitive offering for consumers, advertisers and publishers," Ballmer said.

While downplaying what impact a combination might have on enterprise, Ballmer suggested it could also bolster its Windows Live and Office Live efforts.

"It really represents a transformation of our business, the Windows user wants to be live," Ballmer said. "The Windows experience will increasingly embrace the Internet. There will be a Windows Live. There will be an Office Live as we continue to bring out innovations in which Office transforms, and is transformed by the Internet," he said.

The move comes as Yahoo's business continues to decline. The company earlier this week reported pullbacks in its business and plans to lay off 1,000 employees. Archrival Google, meanwhile, announced last night that fourth quarter revenues of $4.83 billion, an increase of 51 percent year over year. That figure fell short of Wall Street's expectations but also shows less growth than Yahoo's $1.83 billion, which were up just 8 percent for both the fourth quarter and the year.

Given the early stage of the bid, there are more questions than answers of how that might play out. "We have some thoughts, but a team from both companies would be best prepared to assess that," Ballmer said.

"Yahoo has tremendous community and content assets, and by combining these with Microsoft's experience and our own assets, ranging from personal and business productivity, to entertainment and devices, we can further accelerate the transformation for all users to a more social Web," said Microsoft's chief software architect Ray Ozzie.

While Microsoft clearly played up the consumer and ad opportunity of acquiring Yahoo, such a marriage could also impact software developers, given Microsoft's move into the online services world with support for social networking services including Facebook.

Yahoo's own development efforts could bolster Microsoft's defense against the Google and the Google Web Toolkit. "We respect the work Yahoo has done in the realm of creating an open development platform, through it's Yahoo developer network, and look forward to extending this great work to an even broader base of developers," Ozzie said.

"Moving forward, we believe the combination of Yahoo and Microsoft will enable us to deliver a broad range of new experiences to our customers that neither of us would have achieved on our own," Ozzie said.