Microsoft Bids $44.6 Billion for Yahoo

Contrary to some pundits' predictions, it appears Yahoo will not acquire eBay. This just in: Microsoft offered to buy Yahoo. From the press release: Microsoft Corp. announced it has made a proposal to the Yahoo! Inc. Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion. Microsoft's proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008.

The move is clearly aimed at competing with Google - again from the press release: The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners.

Expect layoffs (see "elimination of redundant cost"): The combination will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.

As for what it means for eBay, there has been talk for years of an eBay-Yahoo merger or acquisition, now unlikely at least for 2008. It's interesting to note that Yahoo owns a significant stake in Alibaba, which owns Yahoo China, so it could be more bad news for eBay in China.