Microsoft wants to purchase Yahoo

Microsoft and Yahoo are both struggling to compete with GoogleMicrosoft has offered to buy the search engine company Yahoo for $44.6bn (£22.4bn) in cash and shares.
The offer, contained in a letter to Yahoo's board, is 62% above Yahoo's closing share price on Thursday.
Yahoo cut its revenue forecasts earlier this week and said it would have to spend an additional $300m this year trying to revive the company.
It has been struggling in recent years to compete with Google, which has also been a competitor to Microsoft.

See graph of Yahoo and Microsoft shares
In a conference call, Microsoft's Kevin Johnson said that the combination of the two companies would create an entity that could better compete with Google.
It is a shotgun marriage, but the person holding the shotgun is Google
Tim Weber, business editor, BBC News website
What's at stake, who will win?
"Today the market [for online search and advertising] is increasingly dominated by one player," he said.
Chairman quit
Yahoo confirmed that it has received an unsolicited offer and said that its board would evaluate the proposal, "carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders."
If Yahoo accepted the offer, competition authorities both in the US and the European Union would be likely to investigate the tie-up.
Yahoo chief executive, Jerry Yang, announced on Tuesday that he intended to lay off 1,000 staff as part of a restructuring plan.
Terry Semel, who stepped down as chief executive last June, also quit as non-executive chairman on Thursday.
Microsoft said that Yahoo shareholders could choose to receive either cash or shares.
Oct to Dec 2007 down 23%
July to Sept 2007 down 5%
April to June 2007 down 2%
Jan to March 2007 down 11%
Yahoo share price
Microsoft share price
Google share price
Yahoo shares have fallen 46% since reaching a year-high of $34.08 in October. On Friday they closed almost 48% higher.
Microsoft closed 6.6% lower while Google shares fell 8.6%.
"Ultimately this corporate marriage was forced by the rise of Google, which has grown into a serious competitor for both Microsoft as a software company and Yahoo as an internet portal," said Tim Weber, business editor of the BBC News website.
"It is a shotgun marriage, but the person holding the shotgun is Google."
'Exorbitant premium'
According to its letter to Yahoo, Microsoft attempted to enter talks about a deal a year ago, but was rebuffed because Yahoo was confident about the "potential upside" presented by the reorganisation and operational activities that were being put in place at the time.
"A year has gone by, and the competitive situation has not improved," Microsoft's letter said.
But there has been some concern about the price that Microsoft is offering.
This smacks of desperation from Microsoft who have consistently failed to achieve a meaningful online presence
Matt, UK
Send us your comments
"To me, the premium seems exorbitant, for what is a dwindling business," said Tim Smalls from the brokerage firm Execution LLC.
"I personally don't see how the synergies of Microsoft-Yahoo is going to take on Google."
Other analysts were more enthusiastic about the offer.
"It is a fantastic offer. It is game on," said Colin Gillis from Canaccord Adams.
"This consolidates the marketplace down to Google versus Microsoft. These two companies will be going head to head."

It’s not the first time the west coast software giant

has gone after Yahoo, but it’s very likely to be the last. The offer on the table this time around, a modest $44.6 billion. Microsoft’s offer represents a premium of approximately 65% over yesterday’s closing price and that should be enough to get the job done. Despite having hundreds of millions of users globally, an 8% revenue increase in 2007 and currently being ranked #1 in traffic by, Yahoo has had a remarkably bumpy ride of late. The search engine turned web service provider scraped up about $660 million in profits in 2007, down roughly 13% from 2006. Yahoo is also expected to layoff hundreds of employees in the coming months in an effort to increase profitability. Analysts and basically anyone with a keyboard seem to agree that the timing for this acquisition couldn’t be better, and the deal is expected to go through unless a surprise third-party pops up to intervene with a competitive bid. Yahoo’s first official response to the bid:
Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today said that it has received an unsolicited proposal from Microsoft to acquire the Company. The Company said that its Board of Directors will evaluate this proposal carefully and promptly in the context of Yahoo!’s strategic plans and pursue the best course of action to maximize long-term value for shareholders

What others says?
Last week, Merrill Lynch analyst Justin Post revived a suggestion that he had first brought up in June: Microsoft, Post argued, ought to buy Yahoo. Post pointed to reasons why Yahoo might be worth more than its current so-so earnings suggest; he also observed that a Yahoo purchase would let Microsoft gain serious search revenue, even before MSN AdCenter gets up to speed in growing its advertiser base. Obviously, the proposed Microhoo would be a threat to Google. Part of the reason is the major share of search that the new entity would gobble up. According to comScore numbers released in May, MSN and Yahoo hold a combined 41% of all search traffic, which is just shy of Google’s 43%. But the threat from Microhoo would only partially come from search. The real threat to Google would be in Microhoo’s ability to adapt to a continuously-converging media world–a world that MSN and Yahoo are ready for, but that Google still might not be as ready for as it needs to be.
All of this goes back to each business’s core focus. For Google, everything is search; Yahoo and MSN, by contrast, work in many channels at once and look to integrate them. And because MSN and Yahoo are already thinking about integration now, they’ll be far better prepared when integration really get underway.
You can see that philosophical divergence in the way each entity picks up search traffic. Google’s name is synonymous with search, and it’s the search engine itself that drives the bulk of Google’s search traffic base. Yahoo also gets plenty of direct-to-search visitors; but an awful lot of Yahoo search traffic arrives off of search bars on Yahoo’s enormous publisher network. The same is true for MSN and its publisher network-and MSN searchers even arrive via help buttons on Microsoft software. Google is popular for search in its own right; Yahoo and MSN Search owe much of their popularity to the way each business draws users from its enormous, diverse universe of user interfaces.
The different philosophies also come out in how each business applies search thinking to non-search channels. To take one example, consider search-influenced solutions for content/publisher sites. Google’s big accomplishment here is AdSense, which syndicates actual search ads onto content pages. Yahoo’s Publisher Network isn’t so different from AdSense; but Yahoo has also bought into the Right Media Exchange–which will let the Yahoo publisher network sell display ads by auction, just as Yahoo already does for search ads. Meanwhile, MSN’s publisher network is beginning to offer targeting on a level that’s clearly inspired by the thinking behind AdCenter, MSN’s super-targeted search platform.
These are very different approaches to how search might help publishers and content sites. Google’s AdSense effectively recreates the world in the image of search. MSN and Yahoo, by contrast, truly integrate very different models, combining elements of text-based search advertising with image-based publisher advertising to make something new.
Which approach–Google’s search-centric approach or MSN/Yahoo’s integrative one–is better? A snapshot of today’s online market would give a resounding win to Google, which pulls in roughly 25% of all online ad revenue, the vast majority of which comes from search. Google’s win is strengthened by Yahoo’s poor Q3 performance, especially given the fact that analysts agree that it’s Yahoo publisher network, not its search network, that’s giving Yahoo trouble.
But a present-day snapshot is misleading. That’s because the information world of today is siloed in a way that tomorrow’s world won’t be. Full-length TV content that lives online, and iTunes for your cell phone, are just the beginning of the new convergence–and as channels continue to converge, the ability to work in many universes at once will be increasingly critical. Which is why the multichannel model, and not the search-only model, might just be the long-term winner.
There’s even some indication that the tide’s already turning. That indication comes from online video, which is effectively the merger of the Internet and TV. Just two days after the YouTube acquisition, an Oct. 11 Businessweek article ranked Google Video as the fifth-most popular video destination on the Web–with MSN Video as No. 4, and Yahoo Video at No. 1. Online video is the merger of different media models, and it’s the integrators, not the dominators in search, who took the lead.
Of course, Google may have solved its video problems by purchasing YouTube. But if Google’s video problems come from too narrow a focus on search, then one needs to wonder how many billion-dollar fixes Google can buy just to stay on top as the landscape shifts. Which is why if Google can’t develop a more convergence-minded view of the world, it could face real trouble from a new Microhoo that’s convergence-minded enough, and large enough, to win in Web 3.0.


Microsoft bids $44.6 billion to buy Yahoo

By Eric Auchard and Tiffany Wu
SAN FRANCISCO/NEW YORK (Reuters) - Microsoft Corp offered to buy Yahoo Inc for $44.6 billion, in a bold bid to transform two ailing Internet businesses into a worthy competitor for market leader Google Inc.
In what would be the biggest Internet deal since the ill- fated Time Warner-AOL merger, Microsoft sent a letter to Yahoo's board on Thursday night to offer $31 per share in cash and stock.
The price is a 62 percent premium over Yahoo's Thursday close, but only about a quarter of what the Internet company was worth at the height of the dotcom bubble in 2000.
Yahoo would give Microsoft dominance in Web banner ads used by corporate brand advertisers. It also attracts more than 500 million people monthly to sites devoted to news, finance and sports, and Yahoo Mail is the No. 1 consumer e-mail service.
But critics say the two companies have too many overlapping businesses -- from instant messaging to email and advertising, as well as news, travel and finance sites -- and both are weak in the Web search market, where Google dominates.
"They have to do it because they've tried everything they can do to fix MSN. Yahoo is the most visited site in the world, so it goes without saying that, given the current valuation, this is the perfect time for them to buy it," said Piper Jaffray analyst Gene Munster.
But he added: "Google is running away with the search market and that's obviously the best part of the market. The likelihood that Google gets caught is slim to none."
Yahoo said on Friday its board will evaluate the unsolicited offer. Its shares shot up about 48 percent to Continued...
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Why Google Should Worry About Microhoo (The Danger's In The Touchpoints)
by Mark Simon, Monday, May 7, 2007 10:45 AM ET
Forget the new entity with a combined share of 27% of all searches. Forget Microsoft's $291.21 billion market cap. Google should be worried about a united Microsoft-Yahoo because of the touchpoints.
After all, Microsoft and Yahoo have a combined reach that includes nearly all PC desktops, two of the three most popular search engines, and a portals presence with a truly enormous reach. And so a joint Microsoft-Yahoo would be able to capture users at every stage of computer use, keeping those users away from Google all the while.
That should concern Google quite a bit, but I'm sure they are already quite aware of this threat; much of the problem was raised in its annual 10K report filed with the SEC in March.
Eyeballs from Portals
In that report, Google spells out several reasons why it needs to watch out for Microsoft and Yahoo, both of which tie for first place in its list of potential risks. The danger I'd like to discuss most is that in Google's words, Yahoo and Microsoft could "make their web search or advertiser services easier to access." That, Google says, could lead to "a significant decline in [Google] user traffic or in the size of the Google Network."
One way that threat could solidify actually comes from a danger Google highlighted separately. "Microsoft and Yahoo," the report reads, "...may have a greater ability to attract and retain users...because they operate Internet portals with a broad range of content products and services."
The second fear is related to the first. Since both MSN and Yahoo feature search bars on their portal pages, those portal pages also drive search traffic. Which is why the larger and more popular Yahoo and MSN make their portals, the greater they can extend the reach of their search bars -- and the more search share they're able to steal from Google.
So far, even with their massive portals, MSN and Yahoo clearly haven't stolen enough share of search to do any real damage to Google. But a combined MSN-Yahoo portal wouldn't just be massive -- it would be a portal on a scale we've never seen. That scale might be so enormous, it would allow MSN-Yahoo to start seriously chipping away at Google's traffic.
From Desktops to Search Engines
In the SEC report, Google also voices concern over Microsoft's "features that make web search a more integrated part of...Windows...and other desktop software products."
Google has good reason for this concern. It understands that you'll draw more traffic to your search engine if you can create easy access to it from their desktops. And Microsoft, the leader in desktop software, is clearly better-positioned than Google is to create that kind of desktop/Web search integration.
For just one example of how much Microsoft could do with desktop-based Web search, consider the ability to search on off of Microsoft Word. That's a welcome tool for people who tend to write and research at the same time -- a group that includes a very wide range of people, from college students, to journalists -- to, ahem, the occasional search insider writing about industry acquisition rumors.
Word actually does offer that feature already, although it's a feature that's buried too deeply within Word to be very practical. But it's not hard to imagine Microsoft prominently placing a search bar within the Word toolbar. And when that happens, expect a huge surge of traffic to
Of course, Word is only one piece of Microsoft's desktop arsenal; and every one of those pieces can be integrated with MSN, and with Live search.
The One-Two Punch
As referenced above, the real danger to Google doesn't come from a combined MSN/Yahoo portal alone. Nor does it come from the Web/desktop integration that MSN can uniquely provide. The real danger to Google is the combination of these capabilities that MSN and Yahoo have, but that Google doesn't.
Combined, these synergies would let a combined MSN-Yahoo own the entire computer experience, from the desktop to the Web, without ever leaving the world of MSN-Yahoo. That's a potential that Google doesn't have today -- even if it does currently rule search.
Based on its own risk assessment in its 10K report, it seems to me that Google's aware of what MSN-Yahoo could really mean. And with the need to decide Google's next move, I wouldn't be surprised if Google execs didn't sleep as they had hoped to over the weekend.


We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners," Microsoft CEO Steve Ballmer said in the statement announcing the deal.
Cramer: Microsoft and Yahoo! - Woo-Hoo!

Microsoft's offer gives Yahoo! shareholders the option to receive cash or a fixed number of shares of Microsoft common stock. The total amount payable to Yahoo! shareholders would consist of one-half cash and one-half Microsoft common stock. The offer represents a 62% premium above Yahoo!'s Thursday closing price of $19.18.
The proposal included the letter Microsoft sent to Yahoo!'s board of directors, and focuses largely on the online advertising opportunity. Also, the statement says Microsoft believes the deal will generate at least $1 billion in annual synergy for the combined entity.
Yahoo! released only a short statement in response, saying its board "will evaluate this proposal carefully and promptly in the context of Yahoo!'s strategic plans and pursue the best course of action to maximize long-term value for shareholders."
"Microsoft shareholders will complain that management is overpaying, but much like the News Corp. (NWS - Cramer's Take - Stockpickr) for Dow Jones deal, you just have to pay a premium for the leading brand names," says Jon Markman of Markman Capital Insight and a contributor to
Yahoo! shares were rising $9.03, or 47%, to $28.21. Microsoft, based in Redmond, Wash., was at $30.51, down $2.09, or 6.4%, from the last close. Yahoo!, Sunnyvale, Calif., has spent the last 52 weeks between $18.58 and $34.08.
Rumors that Microsoft would try to take over Yahoo! have surfaced from time to time over the past couple of years as the entrenched tech giants tried to figure out how best to deal with the emergence of Google as the king of the Internet and the site of choice for Web advertising.
Mahoo, Yicrosoft, Mirco Who?
Microsoft noted in its press release announcing the bid that the online advertising market is growing rapidly, from more than $40 billion in 2007 to an estimate approaching $80 billion by 2010.
The Windows operating system maker and operator of the MSN network said the "benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player," a clear reference to Google.
Microsoft said that with Yahoo!, it "can offer a competitive choice while better fulfilling the needs of customers and partners."
Additionally, Microsoft said it believes the proposed combination would be cleared by regulators, and it said it could close the deal in the second half of this year.
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