War of Internet Giants: Microsoft – Yahoo! – Google

On February 1, 2008, Microsoft announced a proposal to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion!… the tussle among the internet giants has revived again.

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 percent premium above the closing price of Yahoo! common stock on Jan. 31, 2008.

Yahoo! Board of Directors and management team unanimously concluded that the proposal is not in the best interests of Yahoo! and its stockholders

After careful evaluation, the Board believes that Microsoft’s proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders.

But Microsoft responded and seems persistent on the deal.

We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market. A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising. The Yahoo! response does not change our belief in the strategic and financial merits of our proposal.

Google seems very concerned about the future of the Internet

Microsoft plus Yahoo! equals an overwhelming share of instant messaging and web email accounts. And between them, the two companies operate the two most heavily trafficked portals on the Internet. Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM, and web-based services? Policymakers around the world need to ask these questions — and consumers deserve satisfying answers.

It seems Yahoo! is seeking to restart merger talks with AOL as a means of defending itself against the $45 billion (£23 billion) hostile bid approach from Microsoft. The tussle among the Internet giants has begun and only time will tell who will win…