Microsoft has made an unsolicited offer to acquire struggling internet company Yahoo in a deal that values the company at $44.6 billion (€30.1 billion). John Collinsreports.
The bid is driven by Microsoft's desire to compete effectively against Google in the online advertising market and has long been rumoured to be in the offering.
Yahoo shareholders will be offered a 50:50 split of stock and shares. The offer of $31 per share is a 62 per cent premium on the price that Yahoo stock closed at on Thursday evening.
If it proceeds, the deal will be Microsoft's first major strategic acquisition for many years and will place pressure on management just as co-founder Bill Gates steps down from an executive role. Microsoft employs 1,700 staff directly and indirectly at its Irish operations. Yahoo employs about 600 here, mostly in its advertising division.
Microsoft executives said the online advertising market is currently a $40 billion global industry but is predicted to grow to $80 billion in the next three years. Chief financial officer Chris Liddell said the deal would have a "break even or better" impact on Microsoft's earnings per share by the second full financial year after the deal closes.
Microsoft made the offer in a letter to Yahoo's board of directors which was delivered after markets closed on Thursday night. It confirms that Yahoo rebuffed an offer from Microsoft in February last year. At that time, the board of Yahoo said the "potential upside" from its introduction of a new advertising platform and a reorganisation did not make acquisition attractive.
"While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo that we are proposing," the letter states.
Yahoo issued a short statement acknowledging the offer. It said its board "will evaluate this proposal carefully and promptly".
Given the current state of the credit market, it would seem highly implausible that a purely financial rival bidder would emerge. As the world's largest software company, there are unlikely to be any strategic bidders that could match Microsoft's deep pockets with the possible exception of Rupert Murdoch's News Corp, which has been building its online capability.
The deal would be the biggest ever takeover in the technology sector, dwarfing the $25 billion acquisition of Compaq by HP in 2002. Merging large technology companies has had mixed results and the Compaq purchase was widely believed to have been one of the reasons HP chief executive Carly Fiorina lost the confidence of her board.
Mr Liddell said by eliminating duplicated functions, a combined Microsoft-Yahoo could make savings of "at least a billion dollars".
A spokeswoman for the US Department of Justice said it would be "interested" in reviewing the anti-trust implications of the purchase.
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