In a pedestrian Friday in the tech world, Microsoft offered $44.6 Billion for Yahoo!.

In spite of a return to power last year of Jerry Yang, Yahoo has been descending for some time now, unable to compete with Google in many key areas. Microsoft’s urge to consolidate search and boost its ad capabilities, combined with getting access to Yahoo’s huge base of consumers, makes acquiring Yahoo sensible. Microsoft’s own struggles with getting market share for Live Search are well known and can be remedied by an acquisition. Yahoo search has held its own against Google in the United States.

Microsoft estimates that the efficiencies created by combining the two giants will save $1 billion a year right off the top.

Steve Ballmer, in an internal email posted on TechCrunch, stressed the online advertising angle, saying:

This year, online advertising is a $40 billion business. It will grow to $80 billion by 2010 and will continue to increase in the years beyond. This market provides a significant growth opportunity for Microsoft—our ability to provide the best search and online experiences for consumers, and the best ad platform for publishers and advertisers, is the key to unlocking this opportunity.

Microsoft is offering $31 per share of cash and/or stock for each Yahoo share, which was priced at $19.18 on Thursday. This is a pretty significant premium that will be very difficult for Yahoo to resist at a time when their one-on-one battle with Google isn’t going well.

It probably makes too much sense not to happen, given the situation. Microsoft’s timing is good and Yahoo does still have a good deal of value. Anti-trust questions will be raised, but the FTC is pretty friendly to massive mergers at this point in time.

So, will it be Google v. MicroHoo? Let the games begin.

This entry was posted on Friday, February 1st, 2008 at 12:37 pmand is filed under Business, Search Engine Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.