Microsoft offers to buy Yahoo for $44.6 billion

Nine months ago, the Wall Street Journal cited anonymous insiders as saying Microsoft and Yahoo had resumed talks over a potential merger aimed at catching up with their common rival, Google. The news generated a fair amount of discussion and speculation, but weeks and months passed without so much as a peep about a deal from either company.

Until today. According to the Associated Press, Microsoft says it has made an unsolicited $44.6 billion bid to purchase Yahoo lock, stock, and barrel. As part of the bid, Microsoft intends to pay $31 per Yahoo share, a hefty premium over Yahoo’s stock price of around $19 yesterday (not to mention the company’s apparent market value of around $27.5 billion).

In a letter to the Yahoo board of directors, Microsoft CEO Steve Ballmer explains his rationale for making the bid now. He says that a year ago, the Yahoo board told Microsoft it "felt it was not the right time to enter into discussions regarding a deal." That position was based on hopes that Yahoo’s new strategy would bear fruit, Ballmer adds, but "a year has gone by, and the competitive situation has not improved." Indeed, Yahoo’s stock price has gone down nearly $10 since February 2007, and the company recently announced plans to cut 1,000 jobs in a cost-reduction move.

Assuming the merger receives approval from regulatory entities, Microsoft expects it to close some time in the second quarter of this year. The people in Redmond expect that buying out Yahoo will help them cut costs by "at least" $1 billion, and they plan to offer "significant retention packages" to Yahoo staffers including engineers, key leaders, and other employees.

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