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Software giant Microsoft has recently announced that it has made a proposal to the Yahoo Board of Directors to acquire all the outstanding shares of Yahoo common stock for per share consideration of USD 31 representing a total equity value of approximately USD 44.6 billion.

In a letter to the board of directors at Yahoo, Microsoft CEO Steve Ballmer says, “Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers.”

The move came on the back of poor financial performance from Yahoo which has seen the firm's shares lose around 40 per cent of their value in the last three months. The announcement immediately boosted Yahoo shares by 55 per cent. Any potential deal is likely to boost Microsoft's web search capabilities, an area it has traditionally lagged in behind Google and Yahoo, and would come hard on the back of its recent deal to acquire enterprise search vendor Fast. It would also give Microsoft a bigger chunk of the lucrative search advertising market, which Yahoo has invested heavily in with the recent launch of its Panama platform.

Google and YouTube, which Google owns, far outpace the combined online video audiences of Microsoft and Yahoo. Combined, Google Video and YouTube reached nearly 80 million unique visitors in December, according to Nielsen Online. That dwarfs the combined reach of the third- and fourth-biggest sites, MSN Video and Yahoo Video, with 16 million unique visitors combined. Audience measurement firm comScore said that of the nearly 9.5 billion online videos viewed in November, Google and YouTube accounted for 3 billion.

However, both MSN Video and Yahoo Video have been successful in attracting brand advertisers to their online video offerings. According to online audience measurement firm Hitwise, the combined market share of U.S. Internet visits for Microsoft and Yahoo Web properties was 15.6 percent of all Internet visits for the week ending Jan. 26, with Google at 7.7 percent. However, for the first four weeks in January, Google accounted for 66 percent of all U.S. searches, with MSN and Yahoo earning a combined 28 percent.

“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,” said Steve Ballmer, on the announcement of the deal. “We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners.”

If the two Internet giants do merge, it is not clear what will happen to the workforce. Yahoo will most likely go ahead with the layoffs announced earlier this week. And as the two companies align departments, more downsizing is likely to occur in order to minimize overlap in job functions.

While the deal might sound as one of the biggest acquisitions in recent times, one must remember that this deal has yet to even be accepted by Yahoo. And even if it were, the U.S. and European antitrust regulators still have to examine the bid in great detail.

While this is the case, analysts have said that there is likely no unfair competition occurring in this takeover, therefore it appears at this point in time, that Microsoft’s take over of Yahoo is inevitable.


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