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CNBC.com
Microsoft said Friday it offered to buy Internet media giant Yahoo for $44.6 billion in stock and cash, in an attempt to boost Microsoft's presence in the online services market.
Both Microsoft and Yahoo have been struggling to compete with Google, and have fallen behind in the race for online advertising dollars.
Microsoft [MSFT 32.6 --- UNCH ] said it plans to pay $31 a share -- payable in the form of $31 in cash or 0.9509 of a Microsoft share -- in the hostile deal, which represents a 62 percent premium on Yahoo's closing price on January 31.
Yahoo [YHOO 19.18 --- UNCH ] shares soared 54 percent in premarket trading, while Google shares tumbled 8 precent. News of the deal also was giving a boost to many technology stocks.
"We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market," Microsoft Chief Executive Steve Ballmer said in a statement announcing its plans.
Microsoft said it had previously discussed a number of alternatives with Yahoo, ranging from commercial partnerships to a merger proposal, which was rejected.
"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," Microsoft said in a letter to Yahoo shareholders.
A deal with Microsoft would be a great outcome for Yahoo shareholders, who have grown increasingly frustrated with Yahoo's stock performance, according to RBC Capital Markets analyst Jordan Rohan. He expects Yahoo founders and insiders to support the deal.
"This is a no brainer for Yahoo shareholders," Rohan said in an interview on "Squawk Box." "The company has floundered and this is a great way to save face."
Yahoo management "can try to get a dollar or two more," but "at the end of the day, I've talked to many of the largest shareholders of Yahoo in the past few days -- there's no patience there anymore," Rohan said.
Microsoft said it estimates it could realize $1 billion in cost savings from the merger.
Rohan expects Microsoft could realize as much as $2 billion a year in free cash flow from the deal said. He anticipates Microsoft will merge back-end businesses, but keep both the Yahoo and MSN brands.
Microsoft said it expects to offer significant retention packages to Yahoo engineers, key leaders and employees. The company expects it could receive regulatory clearance and close the deal in the second half of 2008.
With its deep pockets, Microsoft is heading into the hostile offer well-armed.
The deal demonstrates the power of cash, said David Kotok, chairman and chief investment officer at Cumberland Advisors, in an interview on "Squawk Box."
Kotok also said the deal is bullish for the tech sector.
"It says the world is not coming to an end, and the people who shorted Yahoo are going to pay," Kotok added. "...It tells you that the tech sector's viable. Tech is not just semiconductors. It's very broad. It includes software, big software companies like Microsoft, and all the various types of specialty services. Yahoo's a great example. This is a very good move."
Microsoft Makes $44.6 Billion Bid for Yahoo - Mergers and Aquisitions * US * News * Story - MSNBC.com
Wow, it's so scary, MS is trying to takeover the other companies.
I don't use Yahoo for very long time, I always use Google at all time.