Microsoft Makes $44.6B Hostile Bid for Yahoo
Yahoo said in a statement that it will "carefully and promptly" study Microsoft's offer, which represents a 62 percent premium to Yahoo's closing value yesterday. (See Microsoft Bids for Yahoo.)
The announcement has sent Yahoo's stock soaring $8.65 (45.1%) to $27.83 in early trading today. Microsoft was down $1.75 (5.4%) to $30.85.
Microsoft has been trying to find ways to keep up with Google (Nasdaq: GOOG) in the online search and advertising market, so the announcement doesn’t come as much of a surprise, especially given Yahoo's current vulnerable position.
"The industry will be well served by having more than one strong player," said Kevin Johnson, president of the platforms and services division of Microsoft, in a statement.
Yahoo's profits have been on the decline, and its stock price hit a four-year low this week.
In a letter to the Yahoo board of directors, Microsoft chief executive Steve Ballmer noted that Yahoo had rejected an acquisition bid by Microsoft a year ago because it felt it had a turnaround in the works. But "a year has gone by, and the competitive situation has not improved," Ballmer wrote in the letter.
Microsoft forecasts about $1 billion in cost savings from the proposed merger, which it says would close in the second half of 2008. There could be a lot of pressure to get the deal done by then; Wall Street has fretted that mega deals such as this one could fall under extra scrutiny if a Democrat gets elected president in November.
Yahoo isn't alone in its recent struggles. Google reported yesterday that it missed analysts' estimates for the fourth quarter of 2007. The search giant has seen its growth slow and its share price fall nearly 20 percent since the start of 2008.
With the U.S. heading toward a potential recession, economists fear that a major spending slowdown would also mean a decline in money spent on online advertising.
Meanwhile, Microsoft finished 2007 ahead of analyst expectations and has predicted more growth in 2008, meaning it could be at an opportune time for a big move.
— Raymond McConville, Reporter, Light Reading