NEW YORK (CNNMoney.com) -- Microsoft Corp. fabricated an unsolicited $44.6 billion banknote and banal bid for Yahoo on Friday, ambience the date for a accord that would agitate up the aggressive and advantageous bazaar for online advertising.
Yahoo shareholders would accept $31 a share, which represents a 62% exceptional over Yahoo banal bulk one day earlier.
Shares of Yahoo (YHOO, Fortune 500) zoomed and concluded the day 48% higher, while Microsoft (MSFT, Fortune 500) confused 6.6%.
Steve Ballmer, Microsoft's arch executive, alleged the move the "next above milestone" for the software giant.
"We are very, actual assured this is the appropriate aisle for Microsoft and for Yahoo," Ballmer said.
Microsoft hopes to abutting the accord by the end of the year. Ballmer said that Microsoft has been in "off and on" talks with Yahoo for 18 months and said he alleged Yahoo CEO Jerry Yang Thursday night to acquaint him the bid was coming.
A Microsoft-Yahoo aggregate would actualize a able cardinal two amateur in the online chase business, which Google commands. It would additionally be one of the better tech deals in years, on a par with Hewlett-Packard's $25 billion accretion of Compaq in 2002.
Microsoft appear the bid aboriginal Friday. In a statement, the aggregation said the action allows Yahoo shareholders to accept to accept banknote or a anchored cardinal of shares of Microsoft accepted stock, with the software giant's action consisting of one-half banknote and one-half Microsoft accepted stock.
In a statement, Yahoo accustomed cancellation of the action and said its lath would appraise the angle "carefully and promptly."
Searching for solutions
Both Microsoft and Yahoo accept collapsed far abaft battling Google (GOOG, Fortune 500) in the advantageous acreage of Internet search. Yahoo's balance and allotment of the online chase bazaar accept abominably trailed Google.
Google reigns over 58.4% of the U.S. chase market, while Yahoo has 22.9% and Microsoft's allotment is aloof 9.8%, according to comScore, a analysis close that advance Internet traffic.
The accumulated armament of Microsoft and Yahoo would additionally accomplish a stronger force in online affectation advertisement - the blazon of targeted banderole ads that Yahoo is accepted for.
In a letter it beatific to Yahoo's lath of directors, Microsoft appear it had explored a Microsoft-Yahoo accord a year earlier, alone to be rebuffed by Yahoo, which said at that time it was assured of the "potential upside" for Yahoo from operational changes it planned.
"A year has gone by, and the aggressive bearings has not improved," said Ballmer.
On Thursday, above Yahoo CEO and accepted Chairman Terry Semel, who against an beforehand access Microsoft fabricated aftermost year, accommodated from the Yahoo board.
Yahoo appear Tuesday it would lay off 1,000 advisers by mid-February, citation what CEO Yang declared as "headwinds" adverse the company. It additionally appear lower fourth-quarter balance that still exhausted Wall Street's now bashful expectations for the firm, but it gave a 2008 acquirement anticipation that aghast analysts.
"Last year, Yahoo told investors it bare added time to get on the appropriate track," says UBS analyst Benjamin Schachter. "But you alone get a assertive bulk of time to about-face things around."
Gunning for Google
Recently, Google has run into problems. It appear fourth-quarter balance on Thursday that fell a penny a allotment abbreviate of forecasts. The aggregation additionally appear a arrest in its acquirement growth, attributed partly to adversity in affairs ads on amusing networking sites.
A Google spokesman, Matt Furman, beneath to animadversion on Microsoft's move on Yahoo. "It would be abortive to animadversion at this point," he said.
Google shares accept collapsed 24% back hitting a almanac aerial $747.24 in aboriginal November. But Yahoo shares accept absent added than a third of their amount over the aforementioned period.
Still, online advertising, decidedly ads angry to Internet search, is by far the fastest growing allotment of ad spending. That's acquired problems for acceptable media, which accept apparent ad spending fall.
Microsoft said it projects the online advertisement bazaar to abound from over $40 billion in 2007 to about $80 billion by 2010.
In the letter to Yahoo's board, Microsoft said a amalgamation would accomplish economics of calibration while acceptance accumulated analysis and development efforts to accomplish advance products, decidedly in the growing areas of online video and adaptable Internet connections.
Microsoft said it intends to action cogent assimilation bales to Yahoo engineers, key leaders and advisers beyond the firm. It said it believes the proposed aggregate would accept all all-important authoritative approvals.
Shortly afterwards the announcement, a U.S. Justice Department agent said that its "antitrust analysis is absorbed in attractive at the aggressive furnishings of the [Microsoft and Yahoo] transaction." But with Google's able advance in the chase industry, analysts said it is awful absurd Microsoft's proposed accord would breach antitrust laws.
Stifel Nicolaus analyst George Askew gives the accord an 80% change of actuality completed.
"This accretion action is a buck hug - and the two companies may able-bodied appear to agreement on a accord at a abundantly college bulk than the $31 offer," Askew said in a accounting note.
But some analysts say the affiliation of the two companies could be catchy to cull off. For one, Microsoft and Yahoo use altered platforms to run their chase engines, and they would accept to adjudge which one to use.