Microsoft Proposes to Buy Yahoo for $44.6 Billion, Should Google Be Afraid?

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So finally, the long standing rumor becomes a reality. And although this has been a long-awaited proposal, no one seemed to have predicted it to happen this soon. Microsoft finally proposes to buy Yahoo for a whooping sum of  $44.6 billion.  This puts the value of  outstanding  shares of Yahoo common stock at $31 per share.

The offer, which puts a 62% premium about the closing price of Yahoo common stock on Jan.31, 2008, signifies how much Microsoft respect Yahoo.

We have great respect for Yahoo!, 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,” said Steve Ballmer,  Microsoft’s chief executive officer.

Among the reasons cited by some of Microsoft’s top management people are:

  • To deliver superior  value to both company’s shareholders and better choice and innovation to customers and industry partners.
  • To jointly deliver a broad range of new experiences to  customers that neither of us would have achieved on our own.
  • To achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs
  • To enable the industry to be well served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers.
  • To 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

In the letter submitted by Microsoft  to  Yahoo’s Board of Director,  a reference to Google’s dominance of the online advertising market through acquisition. Hence, Microsoft deemed it necessary to combine forces with Yahoo.

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

Questions are now floating on the web. Will Yahoo accept the proposal? Should the buyout push through, how will these affect the operations of Yahoo?  How will these affect the web ecosphere? But the most important question to ask would have to be as simple as, should Google be afraid? The answer if I would have to guess is a resounding NO.

Arnold Zafra
Arnold Zafra writes daily on the announcements by Google, Ask.com, Yahoo & MSN along with how these announcements effect web publishers. He is currently building three niche blogs covering iPad News, Google Android Phones and E-Book Readers.
Arnold Zafra
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