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Microsoft offers to buy Yahoo for $44.6B

Posted by Christian Dam on February 1, 2008

Cross post from Computerworld:

Microsoft Corp. today offered to buy Yahoo Inc. for $44.6 billion in cash and stock to better compete with Google Inc. in the market for online services.

The market for online advertising is increasingly dominated by one player, Microsoft said, and merging with Yahoo will allow it to offer a competitive alternative.

Microsoft expects the market for online advertising to almost double in size over the next three years, from $40 billion in 2007 to $80 billion by 2010. A merger will allow the company to realize economies of scale and reduce capital costs as it addresses this market, it said.

“The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own,” said Ray Ozzie, chief software architect at Microsoft, in a statement.

Microsoft expects to cut costs by $1 billion a year by realizing synergies with Yahoo in four areas: obtaining economies of scale as its audience increases; combining its research and development efforts with Yahoo’s to innovate faster; eliminating operational redundancy to cut costs; and pooling expertise to innovate in video and mobile.

The companies will work together to develop the merger plan, Microsoft said.

Microsoft intends to pay key Yahoo engineers and other staffers to stay following the merger.

The offer represents a 62% premium over Yahoo’s closing price yesterday. Microsoft expects to receive all necessary approvals in the second half of this year.

Yahoo shares rose 56% to $29.95 in premarket trading this morning following the announcement, Reuters reported. U.S. stock index futures also jumped after the news was released.

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