Incident

Home page

Incident

Microsoft offers $44.6 billion for Yahoo

01 February 2008 15:12 (UTC +04:00)

The $31-a-share bid of cash or Microsoft stock is 62 percent more than Yahooâ€™s closing price yesterday. Before today, Yahoo had dropped 18 percent this year in Nasdaq Stock Market trading, and this week posted a 23 percent profit decline for the fourth quarter.
Microsoft Chief Executive Officer Steve Ballmer is attempting the biggest-ever technology takeover after failing to compete with Google in a market that may almost double to $80 billion by 2010. Googleâ€™s growth has outstripped the pace set by Microsoft in every quarter since Googleâ€™s 2004 initial public offering as its search engine won more users.
``Microsoft is under massive pressure to expand its Internet business to fend off competition from rivals such as Google and this deal shows how desperate they are,â€™â€™ said Thomas Radinger, a fund manager at Pioneer Investments in Munich, which oversees about $95 billion, including Microsoft shares. ``Itâ€™s a huge gamble as the price is very steep and it will take years to successfully integrate such a massive acquisition.â€™â€™
Yahoo rose 54 percent to $29.46 in early trading after closing at $19.18 yesterday. Microsoft, based in Redmond, Washington, fell $1.20 to $31.40 after closing at $32.60 yesterday in Nasdaq trading. Google fell 6.3 percent to $528.79.
Diana Wong, a spokeswoman for Sunnyvale, California-based Yahoo, declined to comment.
Yahooâ€™s inability to crack Googleâ€™s dominance in search has led to eight straight quarters of declining profit and a stock thatâ€™s lost half its value in the past two years.
``It shows how serious the threat is from Google,â€™â€™ Jordan Rohan, an analyst at RBC Capital Markets in New York, said in an interview. ``Yahoo is vulnerable. Investors are losing patience with the Yahoo management team.â€™â€™ The New York-based analyst rates the stock ``outperform.â€™â€™
Google yesterday reported a 52 percent increase in fourth- quarter sales growth, its 14th straight quarter exceeding 50 percent. Still, profit and revenue trailed analystsâ€™ estimates as it received less money than expected from ad deals with social- networking sites like News Corp.â€™s MySpace.
Google, based in Mountain View, California, captured 56 percent of U.S. Web queries in December, almost double the combined share for Yahoo and Microsoft, which attracted 18 percent and 13 percent. Searches will account for 37 percent of the $27.5 billion U.S. online advertising market in 2008, estimates research firm EMarketer Inc.
Yahooâ€™s Investments
Yahoo has also lost sales in the market for graphical, or display, ads to social-networking sites like Facebook Inc. and MySpace. Co-founder Jerry Yang replaced Terry Semel as chief executive officer in June to reignite sales growth.
About half of Yahooâ€™s market value comes from its investments in Chinaâ€™s Alibaba Group and Alibaba.com, Yahoo Japan and South Koreaâ€™s Gmarket Inc. The company said this week that the value of those investments was more than $10 a share in the latest quarter.
Microsoft and Yahoo explored ways to work together in late 2006 and early 2007, according to a letter Ballmer sent to the Yahoo board. Yahoo rejected the idea of being taken over by Microsoft a year ago, the letter said.
``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,â€™â€™ the letter said. ``This proposal represents a compelling value realization event for your shareholders.â€™â€™
Yahoo was founded by Yang and David Filo while the two were graduate students at Stanford University in 1995. The co- founders, who own a combined 9.8 percent of Yahooâ€™s stock, took the company public a year later. After a three-year jump in the stock price, they were each worth $4 billion, according to Forbes Magazine. Then the market crashed in 2000, wiping out 86 percent of Yahooâ€™s market value.
The purchase would be the largest acquisition ever in the technology industry, surpassing Kohlberg Kravis Roberts & Co.â€™s $26 billion acquisition of First Data Corp. last year, according to data compiled by Bloomberg.
Todayâ€™s offer dwarfs Microsoftâ€™s previous largest acquisition, last yearâ€™s $6 billion takeover of AQuantive Inc. Ballmer pursued the purchase after Google agreed to buy DoubleClick Inc., an AQuantive rival, for $3.1 billion.
The company also increased competition with Google by agreeing to buy a 1.6 percent stake in Facebook, the second-most visited social-networking site. /APA/