Microsoft makes $44.6B offer for Yahoo

February 1, 2008 1:07:06 PM PST
Yahoo stock is soaring today, as the struggling internet giant considers an unexpected $44-billion dollar takeover bid from Microsoft.

The Sunnyvale company says it'll carefully and promptly study the biggest offer ever in the technology sector.

Regardless of opinion, not one Yahoo employee approached wanted to talk about the Microsoft buyout offer. This deal could really bail Yahoo out of its slump and shareholders could reap quite a profit. Today's bid announcement has sent Yahoo's share price soaring.

$44.6 billion dollars in cash and stock -- that's the bold bid coming from software giant Microsoft in an unsolicited takeover offer to profit-slumping, internet icon Yahoo. The Sunnyvale-based company has been struggling to restructure its business for more than a year now with little result.

Tech analyst Rob Enderle is not surprised at Microsoft's offer.

"It was likely that Microsoft was going to be one of the bidders, what was surprising was that they did this as soon as they did. I actually expected the stock to drop a bit more before Microsoft made their move," said Rob Enderle, Enderle Group.

Yahoo's outlook has been dim. This week, it announced plans to lay off 1,000 employees beginning this month. Its stock dipped to a four-year low. And the last fourth quarter earnings dropped by 23-percent; much of this due to declining advertising dollars, in fierce competition with Google. So Microsoft's bid of $31-dollars per share appears quite generous, considering it represents a 62-percent premium to Yahoo's closing stock price Thursday. Enderle says Microsoft's lofty offer makes sense.

"What happens is the market's going to come up based on the merger news, and you don't want to have to adjust your offer. Also, you want to set a high enough price so that any other potential acquirer doesn't come in and outbid you. The strategy here is to make that first bid daunting enough," said Rob Enderle, tech analyst.

Daunting enough to another potential bidder, like Google. The concern is that a Microsoft-Yahoo merger would become a more rivalrous challenge to Google's dominance in the online search and advertising markets.

Already the Justice Department has said its antitrust division wants to look at potential competitiveness effects of the proposed buyout. Yahoo is not speaking publicly, but has issued a statement that:

"..its Board of Directors will evaluate this unsolicited proposal carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term shareholder value."

A Microsoft takeover may well delay or eliminate some of the expected 1,000 Yahoo employee layoffs this month -- since it would likely try to retain key Yahoo employees. If a buyout is accepted, Microsoft hopes to close the deal and get regulatory clearance by the end of this year.