Microsoft went public Friday with a US$44.6 billion cash-and-stock bid to acquire Yahoo.
The offer, which was contained in a letter to Yahoo's board, amounts to US$31 a share and represents a 62 percent premium over Yahoo's closing price on Thursday. Microsoft said it will offer shareholders the option of cash or stock.
"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," Microsoft CEO Steve Ballmer said in a statement.
A Yahoo representative could not immediately be reached for comment.
The deal comes as Microsoft and Yahoo have both struggled in efforts to compete against Google.
Microsoft did not mention Google by name in its announcement, but did indicate that its acquisition bid was aimed squarely at its rival.
"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Microsoft said. "Together, Microsoft and Yahoo can offer a credible alternative for consumers, advertisers, and publishers."
Microsoft said it believed it can get all of the needed regulatory approvals and said the deal, if ultimately approved by Yahoo shareholders, could be completed in the second half of the year.
Rumors that Microsoft was interested in Yahoo have bubbled up from time to time, including the past two springs, on the eve of Microsoft advertising conferences.
The move would be by far the largest acquisition ever for Microsoft. Its largest prior deal, also in the online advertising space, was last year's US$6 billion deal to acquire Aquantive.
In a letter sent to Yahoo's board late Thursday, Microsoft confirmed that it has had talks with Yahoo since 2006, but that its suggestions of an acquisition had been rebuffed.
"In late 2006 and early 2007, we jointly explored a broad range of ways in which our two companies might work together," Microsoft said. "These discussions were based on a vision that the online businesses of Microsoft and Yahoo should be aligned in some way to create a more effective competitor in the online marketplace. We discussed a number of alternatives ranging from commercial partnerships to a merger proposal, which you rejected."
The letter goes on to say that an offer in February 2007 was also rejected. Although at one time, Microsoft was open to other kinds of partnerships with Yahoo, the company says now it just wants to own Yahoo outright.
"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," Microsoft said in the letter.
The public offer follows the Yahoo's disappointing earnings report on Tuesday, which sent the company's shares down. Yahoo CEO Jerry Yang also said Tuesday that the company was facing "headwinds" and announced 1,000 layoffs.
Terry Semel, Yahoo's former CEO, who left that position last summer but remained as non-executive chairman of the board, left the company altogether on Thursday.
Yahoo shares rose 58 percent to US$30.38 in premarket trading on Friday following the announcement.
Microsoft has scheduled a conference call for later Friday morning.
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