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Microsoft Makes $44.6 Billion Cash And Stock Bid For Yahoo; 62 Percent Premium

imageThis time the rumors were true: Microsoft (NSDQ: MSFT) has made a $44.6 billion, $31 per share bid for Yahoo (NSDQ: YHOO). The offer represents a massive 62 percent premium over Yahoo’s latest close. The offer will allow Yahoo shareholders to choose either cash or stock, although the total outlay will be half of each. Microsoft believes that the tie-up will give the companies needed scale in the online advertising space and is expecting at least $1 billion in synergies for the combined company. A letter sent from Microsoft CEO Steve Ballmer to the Yahoo board, and included in the release (we’ve also posted it here in full), presents the Redmond company’s arguments for the deal, including the fact that Microsoft itself has seen strong growth as of late and that Yahoo shareholders should be happy trading in their shares for Microsoft shares. The company is also promising “significant” retention packages for key engineers and leaders.

The letter also makes a reference to previous discussions between the companies, which explains the timing of the move: “In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that “now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.” According to that letter, the principal reason for this view was the Yahoo! Board’s confidence in the “potential upside” if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved.”

Staci adds: The Yahoo rumor mill this week included heightened suspicions that the Microsoft bid was already in house and the board of directors was refusing to go public. Turns out to be a mix of both — approaches had been made before but this is the formal bid thought already to be on the table. It is, as I just heard Andrew Ross Sorkin put it, “Murdoch-ian” — an offer that you might think would be nearly impossible to refuse or to nudge higher, although folks are already hard at work looking for an extra few dollars.

Yahoo shareholders are even more frustrated than those of Dow Jones (NYSE: NWS) and there’s only one class of voters to reach. One interesting aspect: the offer represents a 62 percent premium over Thursday’s close but it isn’t that long ago that Yahoo was at $31 per share — Nov. 5, 2007. The 52-week high was $34.08. That makes this bid a bargain — as it stands. How does this fit in with Microsoft’s pocketbook? It’s 14.4 percent of Microsoft’s $309 billion market cap before today’s open.

GOOG-AOL: This also adds urgency to another possible combo: Google-AOL (NYSE: TWX). Google (NSDQ: GOOG) already owns a five percent stake in AOL and a full acquisition would aid Google on the advertising side as well as with traction and traffic in portal areas it has yet to conquer such as finance and sports.

Update: Not surprisingly, Yahoo is soaring on the news, currently up nearly 50 percent to $28.62 per share. Microsoft, meanwhile, is going the other way, giving up about 5.3 percent to $30.88.

Regulatory: Don’t want to read too much into this yet, but a DOJ spokeperson told AP: “The antitrust division would be interested in looking at the competitive effects of the transaction”

Release | MSFT Conference Call | Transcript (via SeekingAlpha)

Be sure to check out out Microsoft and Yahoo archives.

6 Responses to “Microsoft Makes $44.6 Billion Cash And Stock Bid For Yahoo; 62 Percent Premium”

  1. Interestingly, this comes one day after Semel has stepped down as Chairman (31 January). The timing of this is very significant. It basically means that the new chairman can't put a strategy in place, but has to consider this offer first – or come up with a strategy that offers better shareholder value – which is very tough.

    I think he will take the easy way out.

    Very very clever timing by Microsoft.

  2. The Google-AOL combo will be difficult as AOL own, and with Googles purchase of DoubleClick, I doubt that they will be allowed to buy AOL/ too.