MUMBAI: This might just be the mother of all acquisitions! In a bid to pip Google, Microsoft Corp has proposed to acquire rival Yahoo! Inc. for $31 per share, thus valuing the transaction at approximately $44.6 billion in cash and stock.

Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 per cent premium above the closing price of Yahoo! common stock on 31 January, 2008.

“We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market. We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners,” said Microsoft CEO Steve Ballmer.

“Our lives, our businesses, and even our society have been progressively transformed by the Web, and Yahoo! has played a pioneering role by building compelling, high-scale services and infrastructure. The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own,” said Microsoft chief software architect Ray Ozzie.

The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners.

“The combined assets and strong services focus of these two companies will enable us to achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs. The industry will be well served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers,” said Microsoft president of the platforms and services division Kevin Johnson.

The combination will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.

Microsoft has developed a plan and process that will include the employees of both companies to focus on the integration of the combined business. Microsoft intends to offer significant retention packages to Yahoo! engineers, key leaders and employees across all disciplines.

Microsoft believes this proposed combination would receive all necessary regulatory approvals and expects that the proposed transaction would be completed in the second half of calendar year 2008.

Microsoft is also committed to working closely with Yahoo! management and its Board of Directors as they, along with Yahoo! shareholders, evaluate this compelling proposal.