Microsoft offers $45bn for Yahoo as it tries to close the gap on Google

Microsoft believed last night that it had snookered Yahoo into agreeing a $44.6bn (£22.7bn) takeover, after 18 months of having its bid overtures rebuffed by the ailing internet giant.

Steve Ballmer, Microsoft's chief executive, dramatically went public with his hostile offer yesterday, promising to combine two of the internet's most powerful brands in an alliance against the market-dominating Google.

The bid – half in cash, half in Microsoft shares – was pitched at a 62 per cent premium to the Yahoo share price on Thursday night, and timed to capitalise on growing disillusionment with the company's strategy after another Yahoo profit warning this week. At the same time, Microsoft's advisers were privately hinting that if Yahoo's board members voted against the deal, they could face an attempt to oust them at the company's shareholder meeting in the summer.

Coming after six months where merger and acquisition activity had all but dried up, the prospect of such a giant deal energised the stock market and shone a spotlight on the tech sector in particular. "This is the biggest deal since AOL and Time Warner merged in 2000," said Peter Rowell, chairman of technology M&A adviser Regent Associates. "Mergers and acquisitions will continue to be a fundamental part of the technology industry in 2008, barring a severe recession."

Mr Ballmer argued that combining Microsoft's loss-making MSN internet business with Yahoo would enable the pair to make more money from online advertising than they have been able to do as separate businesses, because it would be selling space on a much bigger portfolio of MSN, Yahoo and partner websites. A deal would also generate $1bn of annual savings, while still allowing investment in new technology for better tailoring ads to internet users' preferences.

"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Mr Ballmer wrote to Yahoo founder and chief executive Jerry Yang, in a letter made public yesterday. "Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers and publishers."

Yahoo claims that almost half a billion people regularly interact with its network of internet sites, which include news, finance and entertainment content, soc-ial networking, including the Flickr photo-sharing service, and email and messaging services. MSN's internet offering is smaller but overlapping, and both companies also run search engines that have been crushed by the Google juggernaut since the start of this decade.

Mr Ballmer's letter revealed that Microsoft and Yahoo held talks about a tie-up in late 2006 and early 2007, but Yahoo pulled out. In February last year, Yahoo told Microsoft that it believed its go-it-alone strategy, including the roll-out of a new advertising technology, would boost the company. "A year has gone by and the competitive situation has not improved," Mr Ballmer chided, before ending on a threat: "Depending on the nature of your response, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realise the value inherent in our proposal."

Yahoo stock rose almost 48 per cent in New York. In a terse statement, Yahoo promised it would evaluate the offer and respond in a timely manner.

Under its poison pill laws, Yahoo could issue new shares to prevent a hostile bidder buying more than 15 per cent of the company without the board's say-so, but Micro-soft advisers have already examined the possibility of offering a slate of new board members at the annual meeting in a proxy fight that would double as a shareholder vote on the bid. Microsoft would have until mid-March to launch a proxy fight.

The bid is Mr Ballmer's most audacious – and expensive – attempt yet to close the gap with Google, which has snatched more than half of the revenue from search-based advertising. It would be by far the biggest acquisition in Microsoft's history. The urgency of the task has grown since Google's $3.1bn acquisition of DoubleClick, which took it into banner advertising last year. In response, Microsoft paid $6bn for aQuantive, an internet ad agency that rivals DoubleClick. With $40bn being spent annually on internet advertising, neither Microsoft nor Yahoo can afford to cede the race for market share.

But analysts said there were still daunting integration challenges, since Yahoo has a fiercely independent culture and is based in Silicon Valley, far from Microsoft's Seattle headquarters.

ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Arts and Entertainment
'Molecular Man +1+1+1' by Jonathan Borofsky at Yorkshire Sculpture park
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

2 x Risk Analysts Required - SAS - Banking

competitive: Progressive Recruitment: A world leading banking organisation are...

Brady Business Analyst - Syseca - (EBIS / EDIS) - London

£500 - £1000 per day: Harrington Starr: Harrington Starr are urgently recruiti...

Systems Accountant

£75000 - £100000 per annum: Cameron Kennedy Recruitment: We urgently require f...

Investment Banking Sales Manager

£40000 - £50000 per annum + competitive package: Orgtel: Investment Banking Sa...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil