WebGuru’s Blog about Digital Life

In a recent statement issued today from Microsoft, Microsoft proposes to buy Yahoo! for nearly 44.6 billion dollars. It is like $31 a share, which is at a 62 percent premium to Yahoo’s closing price of $19.18 yesterday (1/31/2008). And the investors of Yahoo! can elect to accept cash or exchange with Microsoft’s share in the a total half of half ratio. Why should Microsoft do that? Well, it is obvious that this move is to give the software giant more market share and become a significant threat to Google.

The following is what Microsoft says about this acquisition:

Transaction valued at approximately $44.6 billion in cash and stock; provides 62 percent premium to current trading price for Yahoo! shareholders; combined entity to create a more competitive company, providing superior value to shareholders, better choice and innovation for customers and partners

To be more competitive in the search engine game is not a news for Microsoft since that area was dominated by one player(Google) and Microsoft will try whatever it can to beat Google. Since it can not beat Google by its own now, it is a good idea to combine another guy in the town to try again. Actually Microsoft proposed such acquisition a year ago (February 2007) but Yahoo! turned it down since Jerry Yang came back to Yahoo! as the CEO and he thought he could revive Yahoo!. After one year, things changed a little bit but did not make much improvement. A few days ago, Yahoo! just announced it would cut off 700 jobs (I can’t remember the exact numbers). And Microsoft sees it is a good time, and proposed another acquisition again.

According to Microsoft, the combination of Yahoo! and Microsoft will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.

Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.

Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.

Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.

Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced.

What did Yahoo! say? In a statement Friday, Yahoo said it will “carefully and promptly” study Microsoft’s bid.

How the big chance is for Yahoo! to accept this bid? I do not know, but do you really think MicroHoo will beat Google in the next couple years? I do not think so.