( Reuter )- Microsoft Corp made a bid to buy Yahoo Inc for $44.6 billion in cash and stock, seeking to join forces against Google Inc in what would be the biggest Internet deal since the Time Warner-AOL merger.
In its boldest-ever acquisition move, Microsoft sent a letter to Yahoo's board on Thursday night, offering $31 per share for the Internet media company, a 62 percent premium over its Nasdaq closing stock price that day. The price is still below Yahoo's year-high of $34.08 in late October. Yahoo said on Friday its board will evaluate the offer.
Yahoo shares shot up 45.5 percent to $27.91.
The world's biggest software maker is seeking a joint stand against an ever more powerful Google, whose share of the global Web search market has reached 77 percent, according to Internet audience researcher comScore. Yahoo is second with 16 percent and Microsoft was a distant third with 3.7 percent.
Yahoo would give Microsoft dominance in Web banner ads used by corporate brand advertisers. Yahoo attracts more than 500 million people monthly to a network of sites devoted to news, finance and sports as well as Yahoo Mail, the No. 1 consumer e-mail service.
"Microsoft's wanted to do things that could build up its online business dramatically," said Brendan Barnicle, an analyst at Pacific Crest Securities. "This is going to be a big bet for them. But I also think it's where they see the market going, so they really needed to get there.
"This is more than a shot across the bow at Google, because you put these two guys together who are basically two and three in search and makes them far more relevant," he added.
Yahoo said its board will evaluate the unsolicited bid. Microsoft shares, which have a market capitalization of about $300 billion, fell 5.5 percent to $30.82.
Microsoft Chief Executive Steve Ballmer told analysts on a conference call that the deal would transform its money-losing Internet division, which it sees as critical to growth, into a profitable pillar of its business.
"We have been losing money. Our plan here would be to not lose money in the future," Ballmer said.
Ballmer said Microsoft had held discussions with Yahoo "off and on for the last 18 months."
"A year ago, the management team told us it wasn't really the right time to discuss an acquisition," Ballmer said, in an apparent reference to then Chairman and Chief Executive Terry Semel, who was forced out as CEO in June. He resigned as chairman of Yahoo on Thursday, a day ahead of Microsoft's bid.
While speculation of such a tie-up has swirled in the markets for more than a year, critics say Microsoft and Yahoo have very different corporate cultures and many overlapping businesses, from instant messaging to email and advertising, as well as news, travel and finance sites.
"To me, the premium seems exorbitant, for what is a dwindling business. I personally don't see how the synergies of Microsoft-Yahoo is going to take on Google," said Tim Smalls, head of U.S. stock trading at brokerage firm Execution LLC.
Yahoo has been losing market share to Google in the increasingly strategic Web search market, and warned earlier this week that it faced "headwinds" in 2008, forecasting revenue below Wall Street estimates.
Microsoft said the online advertising market is growing rapidly and expected to reach nearly $80 billion by 2010 from over $40 billion in 2007. It added it is "increasingly dominated by one player," referring to Google. Microsoft paid $6 billion last year to buy online advertising services firm aQuantive as a bulwark against Google's growing position.
The software company said it had identified four areas that would generate at least $1 billion in annual synergies for the combined entity.
Microsoft General Counsel Brad Smith acknowledged that rival bidders could emerge, but said any attempt by arch-rival Google to acquire Yahoo would face insurmountable antitrust hurdles.
"Any number of companies might take an interest. There's one company that cannot: That's Google itself. Given its superdominant market share, Google is clearly prevented by antitrust laws from buying Yahoo," the chief lawyer said.
Mark May, analyst at Needham & Co, said that while the price is a premium to Yahoo's recent trading price, it was in line with its average trading value over the last 2 years.
"I would not be surprised to see this bid have to be raised over time," he said. "I think there are companies out there like Comcast (Corp) and Viacom (Inc) and others that still need to address the emergence of online media and haven't. So there are clearly other strategic companies out there."
Under the proposal, Yahoo shareholders can choose to get $31 cash, or 0.9509 of a share of Microsoft common stock. The deal in aggregate must consist of one-half cash and one-half Microsoft common stock, it said.
The Microsoft-Yahoo deal would be the largest in the Internet market since the $182 billion purchase of Time Warner Inc by AOL in 2001, which was seen as the worst merger in recent corporate history, with clashing corporate cultures and many of the promised synergies never materializing.