Microsoft bids $44.6 billion to buy Yahoo

SAN FRANCISCO/NEW YORK (Reuters) - Microsoft Corp (MSFT.O) offered to buy Yahoo Inc (YHOO.O) for $44.6 billion, in a bold bid to transform two ailing Internet businesses into a worthy competitor for market leader Google Inc (GOOG.O).

In what would be the biggest Internet deal since the ill-fated Time Warner-AOL merger, Microsoft Chief Executive Steve Ballmer sent a letter to Yahoo's board on Thursday night to offer $31 per share in cash and stock.

The price is a 62 percent premium over Yahoo's Thursday close, but only about a quarter of what the Internet company was worth at the height of the dotcom bubble in 2000.

Yahoo would give Microsoft dominance in Web banner ads used by corporate brand advertisers. It also attracts more than 500 million people monthly to sites devoted to news, finance and sports, and Yahoo Mail is the No. 1 consumer e-mail service.

The shares of Microsoft, which has a market capitalization of about $300 billion, fell 6.6 percent as some investors worried the world's top software maker may be overpaying for Yahoo and could have a hard time getting a return on its investment.

Critics say the two companies have too many overlapping businesses -- from instant messaging to email and advertising, as well as news, travel and finance sites -- and both are weak in the Web search market, where Google dominates.

"They have to do it because they've tried everything they can do to fix MSN. Yahoo is the most visited site in the world, so it goes without saying that, given the current valuation, this is the perfect time for them to buy it," said Piper Jaffray analyst Gene Munster.

But he added: "Google is running away with the search market and that's obviously the best part of the market. The likelihood that Google gets caught is slim to none."

Yahoo said on Friday its board will evaluate the unsolicited offer. Its shares shot up about 48 percent to $28.33. The shares of Google, which has a market value of about $160 billion, fell 8.58 percent to close at $515.90.

TRANSFORMATIVE OR CULTURE CLASH?

Speculation about a Microsoft-Yahoo deal has swirled through the markets for more than a year, as investors looked for a joint stand against the ever more powerful Google.

Google's share of the U.S. Web search market rose to 58.4 percent by December from 52.6 percent in January last year, while Yahoo's fell to 22.9 percent from 26.9 percent, and Microsoft's fell to 9.8 percent from 10.4 percent, according to comScore data.