Microsoft Makes $44.6 Billion Bid for Yahoo!

REDMOND, February 1: Looking to take on Google’s dominance
in the online space, Microsoft Corporation has proposed a $44.6-billion
acquisition of Yahoo!

The offer values Yahoo! at $31 per share, a 62-percent premium
on the Internet giant’s current trading price. The deal would allow the Yahoo!
shareholders to elect to receive cash or a fixed number of shares of Microsoft
common stock, with the total consideration payable to Yahoo! shareholders
consisting of one-half cash and one-half Microsoft common stock.

“We have great respect for Yahoo!, and 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,” said Steve Ballmer, the CEO of Microsoft. “We believe our combination
will deliver superior value to our respective shareholders and better choice
and innovation to our customers and industry partners.”

Microsoft said in announcing its bid today that a merger
with Yahoo! would enable both companies to more effectively exploit the online
ad market, set to hit nearly $80 billion by 2010. “The combined assets and
strong services focus of these two companies will enable us to achieve scale
economics while reaching R&D critical mass to deliver innovation
breakthroughs,” said Kevin Johnson, the president of the Platforms &
Services Division of Microsoft. “The industry will be well served by having
more than one strong player, offering more value and real choice to
advertisers, publishers and consumers.”

Synergies are expected to be realized in four areas: scale
economics driven by audience critical mass and increased value for advertisers;
combined engineering talent to accelerate innovation; operational efficiencies
through elimination of redundant cost; and the ability to innovate in emerging
user experiences such as video and mobile. Microsoft believes these four areas
will generate at least $1 billion in annual synergy for the combined entity. Microsoft
says it believes this proposed combination would receive all necessary
regulatory approvals and expects that the proposed transaction would be
completed in the second half of this year.

The offer has been submitted to Yahoo!’s Board of Directors,
care of chairman Roy Bostock and CEO Jerry Yang. The letter notes: “By whatever
financial measure you use—EBITDA, free cash flow, operating cash flow,
net income, or analyst target prices—this proposal represents a
compelling value realization event for your shareholders.”

The letter continues: “Microsoft’s consistent belief has
been that the combination of Microsoft and Yahoo! clearly represents the best
way to deliver maximum value to our respective shareholders, as well as create
a more efficient and competitive company that would provide greater value and
service to our customers. In late 2006 and early 2007, we jointly explored a
broad range of ways in which our two companies might work together. These
discussions were based on a vision that the online businesses of Microsoft and
Yahoo! should be aligned in some way to create a more effective competitor in
the online marketplace. We discussed a number of alternatives ranging from
commercial partnerships to a merger proposal, which you rejected. 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.”

—By Mansha Daswani