Microsoft makes a bid for Yahoo

Microsoft (MSFT) is offering Yahoo (YHOO) a way out of its misery, but so far Yahoo doesn’t seem to want one. Microsoft said Friday morning it had proposed to buy the struggling Net giant for $31 a share, or $44.6 billion, in cash and stock. The deal would offer Yahoo shareholders a 62% premium to Thursday’s closing price, and combine the forces of two powerful Internet companies that are having trouble on their own competing with Google (GOOG). “We have great respect for Yahoo,” said Microsoft chief Steve Ballmer, “and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.” News of the bid sent Yahoo shares soaring more than 50% in early action Friday, while Microsoft shares slipped 2%.

Microsoft’s press release indicates that the companies have been discussing some sort of arrangement that would help them combine against Google for two years. But the Redmond, Wash., software giant now believes the competitive situation has deteriorated to the point where only a merger would make sense.

 ”In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together,” Microsoft says. “These discussions were based on a vision that the online businesses of Microsoft and Yahoo! should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected. 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.” 

Microsoft’s letter to Yahoo further indicates that a year ago, Microsoft approached Yahoo’s board but was told that “now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.” Given the plunge in Yahoo stock and the prospect of a damaging recession this year, if now isn’t the right time, it’s hard to imagine what is.