Microsoft offers $44.6bn for Yahoo

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Microsoft made a dramatic attempt to stifle Google’s growing dominance of the internet by going public on Friday with an un­solicited $44.6bn bid for Yahoo.

Even though it represented a 62 per cent premium to Yahoo’s closing share price the day before, industry executives and analysts said the approach was likely to be only the opening shot in a scramble for control of one of the few large online media and advertising companies.

The cash-and-stock offer, worth $31 a share, is far below what Microsoft was prepared to pay a year ago, according to one person familiar with the situation, which suggests Microsoft may be willing to pay more to win over Yahoo’s board. At that stage, before a deterioration in its business hit Yahoo’s share price, Microsoft was prepared to offer up to $43 a share, the person said, although someone else close to the situation denied it.

Microsoft executives left no doubt they had been forced to act after losing ground to Google in the online advertising business.

“The industry will be better served by having a more credible alternative in search and advertising,” said Kevin Johnson, executive in charge of Microsoft’s online operations.

Steve Ballmer, Microsoft chief executive, called Yahoo co-foun­der Jerry Yang on Thursday eve­n­ing to propose the deal, someone close to the situation said.

Mr Ballmer said on Friday Microsoft had been driven to make an unsolicited offer after sitting in the wings since being rebuffed. “We were interested in an acquisition a year ago – it wasn’t right for them then.”

The prospect of a stronger rival to Google was welcomed in parts of the advertising and media world, where the search engine’s growing strength has been watched with trepidation.

Sir Martin Sorrell, CEO of WPP, said: “Clients would like to see more balance in the marketplace, whether in display [advertising] or text.”

Executives at Micro­soft said media companies had called them welcoming the approach.

As a combination of the second and third largest US search companies, a merger would be likely to attract close antitrust scrutiny. Google’s own proposed purchase of DoubleClick, the online advertising company, is under review by European regulators.

Even if it led in effect to a duopoly, a merger would create “more vigorous competition” in a market that might otherwise fall to a single company, said Ron Cass, a former vice-chairman of the US International Trade Commission. It should be cleared by regulators, he said.

Together, Microsoft and Yahoo would account for about 20-24 per cent of the global search advertising market and 30 per cent of the online display market, according to Sandeep Aggarwal, analyst at Oppenheimer. Google is estimated to account for70 per cent of search advertising, which now accounts for nearly 45 per cent of all online advertising.

A merger would be likely to lead to extensive job losses. Microsoft said cost savings would be “at least $1bn”.

Yahoo soared 48 per cent on the news in New York on Friday to $28.35. Microsoft ended down nearly 7 per cent at $30.45.

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