Microsoft Bids $44.6 Billion for Yahoo

A Justice Department spokeswoman said the agency would be "interested" in examining the antitrust implications of the deal, wire services reported.

An ongoing consolidation in the online advertising world largely has gotten a green light from regulators, including Google's recent purchase of DoubleClick, one of the leading Internet ad sales companies. In a news release, Microsoft said it thought the transaction would be approved in time for a deal to be completed by the end of the year.

In a letter yesterday to the Yahoo board of directors, Ballmer put the offer in a blunt context: Google is gaining increasing control of the online advertising market, and Yahoo's efforts to compete on its own are failing.

Yahoo and Microsoft have discussed different business alliances in recent years, but previous merger talks were rejected because Yahoo's executives wanted to pursue a new business strategy on their own, Ballmer recounted.

A year later "the competitive situation has not improved," Ballmer wrote. By combining, he argued, the two could consolidate their online audiences, cut costs on research and operation, and become a credible competitor to Google.

"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Ballmer wrote. "Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers, and publishers."

The offer was delivered the same day that Yahoo announced the departure from its board of former chief executive and longtime chairman Terry Semel, a change that had been in the works for months as Semel came under pressure for the company's poor performance.

One of Yahoo's central initiatives over the past year in particular has failed to meet expectations. The company's "Project Panama" introduced a new formula for choosing which ads to run with search results. Previously, the ads from the highest bidder for a search word got the most prominence. Under the new project, the number of "clicks" an ad had previously received would be taken into consideration, too.

But analysts said the initiative had little effect on Yahoo's market share, and that it seemed to be slipping against Google, which already had such a system in place.

"While a commercial partnership may have made sense at one time, Microsoft believes that the only alternative now is the combination of Microsoft and Yahoo! that we are proposing," according to the letter.

Staff writer Debbi Wilgoren contributed to this report.