Microsoft Offers $44.6 Billion for Yahoo!

Microsoft made a bid to buy Yahoo! for $44.6 billion on Friday. The price is $31 a share, representing a 60% premium over the market’s valuation of Yahoo and its pointless exclamation mark. The regulatory agencies in Europe and America are all over this as it reduces the internet search business to a duopoly, with Google retaining the majority of the action.

In a sense, the bid represents an admission of failure by Microsoft. Since it has not had much success in building up its own search technology and ad revenue, it is going to buy someone else’s. And Yahoo has had declining profits for the last eight quarters, so the shareholders may be in a selling mood.

Microsoft’s CEO Steve Ballmer wrote in a letter to Yahoo’s board, “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.” In other words, Yahoo screwed up so badly that the only way it and Microsoft can compete against Google is by a merger.

At least, that’s how Mr. Ballmer is selling the idea. “Google's clearly got a dominant position. They've got about 75 percent of paid search worldwide,” Mr. Ballmer said. “We think this enhances competition.”

Of course, Google doesn’t see it that way. Google’s chief legal officer Michael Drummond blogged, “This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the Internet: openness and innovation.” The regulators are going to be busy with this one.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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