Yahoo Acquisition Proposed

After more than a year of fruitless partnership discussions with Yahoo executives, Microsoft announced it will offer US$44.6 billion in cash and stock to Yahoo shareholders to acquire the company. The massive size and aggressive nature of the offer show Microsoft’s anxiety that Google is on its way to building an insurmountable lead in online advertising, which could fund projects that eventually cut into sales of traditional Microsoft software, such as Office and Exchange.

Yahoo’s board of directors rejected Microsoft’s initial proposal, but even if the companies reach an agreement, the deal will face intense regulatory scrutiny, particularly in Europe. If approved, integrating the two companies and eliminating redundancies to improve efficiency could prove exceptionally difficult and time-consuming, giving Google more time to build its lead and perhaps distracting Microsoft from its traditional core businesses. The move would also deplete Microsoft’s cash hoard, putting an end to the multibillion-dollar share buybacks of the last four years and making it harder to bolster the company’s other businesses through acquisitions.