Microsoft Makes $44B Play for Yahoo

In a move to better compete in Internet-search and related businesses against the growing colossus that is Google, software giant Microsoft made a cash-and-stock bid for Internet portal Yahoo that valued the company at $31 per share, or $44.6 billion. That represents a 62% premium over Thursday’s closing price of $19.18.

In a letter to Yahoo’s board of directors, Microsoft CEO Steve Ballmer declared that the combination of Microsoft and Yahoo would deliver “maximum value” to shareholders of both companies and provide better service to their customers.

“While online-advertising growth continues, there are significant benefits of scale in advertising-platform economics, in capital costs for search-index build-out and in research and development, making this a time of industry consolidation and convergence,” Ballmer wrote. “Today, the market is increasingly dominated by one player that is consolidating its dominance through acquisition. Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers and publishers.”

Ballmer is obviously referring to Google, as its $3.1 billion acquisition of display-advertising firm DoubleClick was approved by the FTC in late December.

The announcement troubled Jeff Chester of the Center for Digital Democracy, who has been pushing the Federal Trade Commission to pay closer attention to the merging of Internet media, arguing that it is the next consolidation battleground.

"Today's proposed acquisition, if consummated, will create a powerful interactive Internet duopoly in online media," he said in an e-mailed statement. "Google and Microsoft will have inordinate power to shape the online-communications marketplace, including journalism, entertainment and advertising. The once most potentially democratic of all mediums -- the Net -- is being shaped by the same powerful forces that consolidated the 'older' media of broadcasting and newspapers."

"Two years ago [November 2006]," he continued, "the Center for Digital Democracy and US Public Interest Research Group petitioned the FTC to open up an antitrust investigation into the growing consolidation of the online ad business." It didn't, and that failure has "placed consumers and competitors at risk."

Chester further told B&C that he is writing letters to key legislators asking them to investigate the FTC for failing to adequately protect consumers and competition.

“They are clearly asleep at the digital switch when it comes to understanding what is going on in the media,” he says. “It's time the FTC chairman stopped reading TV Guide and started looking at online advertising. It is also time for the FCC [Federal Communications Commission] to launch an investigation. The same advertising show-business model that undermined the potential of the TV industry is doing a digital rerun."

Yahoo -- which has been under shareholder pressure for several years and installed cofounder Jerry Yang as CEO last June as a replacement for Terry Semel -- said in a statement that it would “evaluate this proposal carefully and promptly in the context of Yahoo's strategic plans.”

Semel, a former Hollywood studio chief, came to Yahoo to reinvigorate its advertising business but instead saw its position in Internet search steadily decline on his watch. The company announced Thursday that he had stepped down from his position on its board as nonexecutive chairman and been replaced by independent director Roy Bostock.

In early trading Friday, Microsoft shares were down $1.32 each, or 4%, while Yahoo shares were surging, up $9.44, or 49%.