Microsoft Offers to Buy Yahoo for $44.6 Billion
UPDATE2: CEO Ballmer suggests the firms could team on online ads and apps.
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Saturday, February 2, 2008; 12:16 AM
Microsoft has offered to buy Yahoo for around $44.6 billion in cash and shares, to better compete with Google in the market for online services.
Microsoft CEO Steve Ballmer made the offer ina letter to Yahoo's board of directorson Thursday, telling the board that he would release the letter Friday morning.
Read PC World Editor-in-Chief Harry McCracken's opinion on the possible deal. 
(Go to PC World's Microsoft/Yahoo coverage page to read and comment on this major technology event.)
On a conference call Friday, Kevin Johnson, president of Microsoft's platforms and services division, called a combination of Microsoft and Yahoo a more "credible" alternative to Google in the online advertising and services market.
"By combining the assets of Microsoft and Yahoo we can offer a more competitive choice for consumers, advertisers and publishers," he said.
It was Yahoo's board that first approached Microsoft, in February 2007, Microsoft said.
Yahoo, in a statement, said its board will carefully evaluate Microsoft's proposal, which it described as unsolicited.
Microsoft expects the market for online advertising to almost double in size over the next three years, from $40 billion in 2007 to $80 billion by 2010. A merger will allow it to realize economies of scale and reduce capital costs as it addresses this market, it said.
Microsoft expects to cut costs by $1 billion a year by realizing synergies with Yahoo in four areas: obtaining economies of scale as its audience increases; combining its research and development efforts with Yahoo's to innovate faster; eliminating operational redundancy to cut costs, and pooling expertise to innovate in video and mobile.
The companies will work together to develop the merger plan, Microsoft said.
It intends to pay key Yahoo engineers and other staff to stay following the merger.
