Last Updated on Tuesday, 19 February 2008 11:57 Friday, 01 February 2008 09:09

In an unsolicited proposal, Microsoft has offered to buy Yahoo! today for 44.6 billion USD. Yahoo! has been swatting away Microsoft's courtship since early 2006, including turning down a partnership offer last February. This new offer would be a 61% premium over Thursday's (YHOO) stock value. Stockholders would receive 31$ or 0.9509 Microsoft shares for each Yahoo! share.

The problems lie in the two companies struggling to compete with Google for online services. Despite Microsoft's acquisition of Aquantive last year, the company believes that Yahoo!'s reach will help them deal with their direct rival. Microsoft has been losing money in the ad businesses and hopes to turn this trend around for the better. Google served ads against Microsoft at a rate of 7-1 last year.

Microsoft's initial bids to yahoo involved partnerships and other agreements. Now, they want to own Yahoo! completely.

In the letter to Yahoo! yesterday, Microsoft said:

"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,"

An analyst for Jupiter Research named Michael Gartenberg said that it is ""clear that there is increased pressure on Microsoft from Google, and they recognize that. Way back when, Yahoo wasn't that interested in a Microsoft deal. What a difference two years make. Microsoft has a pile of money, and Yahoo has experienced problems of its own. Ballmer, in the past, has historically not loved these types of deals. It is indicative of how different the world is now."

Whether or not this deal will help the two companies is yet to be seen. What is clear is that Microsoft and Yahoo! are having severe problems competing with Google. The Yahoo! board of directors is evaluating the proposal in the context of Yahoo!'s strategies, and they will respond soon with an answer. Yahoo!'s recent poor performance and job layoffs will more than likely contribute to the decision.

If Microsoft and Yahoo! forge a deal, EU and US regulators will have to approve it. Imran Khan of J.P. Morgan Securities believes that they will not have a problem getting approval for the deal. Beyond that, Microsoft still needs to come up with a plan on how to integrate Yahoo!'s overlapping brand services. With Yahoo!'s entrenched customer base, it will be a difficult task  to complete. We will keep the updates flowing as more details surface.

For more in-depth analysis check out Bloomberg and CNET. 

**update**

Google reacted quickly since Microsoft propositioned Yahoo!. ZDNET has the story.

**update**

NYU Analyzes Deal

**update**

Yahoo! Plans to Respond 

**update**

Microsoft is using their might to oust the Yahoo! board of directors. They have decided to kick it up a notch and try to takeover Yahoo! in a hostile manner.

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