Microsoft's Yahoo! Bid Is a Move on Google

But analysts say Google's advantage in search and online advertising isn't threatened.

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Microsoft has offered to buy Yahoo for approximately $44.6 billion in cash and stocks.

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Microsoft is battling back in its attempt to take the Internet search and advertising fight to Google's doorstep with its huge $44.6 billion bid for Yahoo!

The hefty premium offered by Microsoft—$31 a share cash, or a 62 percent premium to Thursday's Yahoo! close—sent shares soaring by more than 50 percent in early trading.

Steve Ballmer, Microsoft's chief executive, said, "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." Yahoo! said it would "evaluate this proposal carefully and promptly."

The deal gives Microsoft some much needed heft in the Internet advertising field and marks a big step in creating tougher competition for search leader Google, which saw its shares slide 8 percent ahead of the bell.

But it doesn't change the fact that Google is winning the search and advertising battle by a solid margin. Citigroup analysts said there's still no reason to expect users to give up their "overwhelming preference" for Google but said the long-term potential for Microsoft is there if it can help Yahoo! reverse course.

Earlier this week Yahoo! warned 2008 would be a difficult year as it struggled to revamp its online services under cofounder Jerry Yang, who returned to Yahoo! last year.

Despite those efforts, a buyout has been a popular topic for some time as Yahoo! shares slumped more than 45 percent since October and its share of the Internet search pie declined.

Henry Blodget, a blogger and former tech analyst, wrote that the move by Microsoft is "brilliant," because it's "a big premium dangled in front of battered Yahoo! shareholders, but a price that would have seemed absurdly low as recently as six months ago. Given Yahoo!'s battered stock and low 2008 outlook, we expect the offer will be accepted."

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  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.