Microsoft wants to buy Yahoo

Microsoft is offering $44.6bn

Microsoft is offering to buy Yahoo for $44.6bn (£22.4bn), a sum representing a 62 per cent rise on the search giant's current value.

Yahoo shareholders have been offered the option of cash or Microsoft stock as part of the deal.

"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," said Steve Ballmer, chief executive officer of Microsoft.

"We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry
partners."

But the proposed deal will have to overcome a number of hurdles if it is to succeed, said Gartner research vice president Andrew Frank.

"Although the synergies between the two companies, which Microsoft asserts are worth at least $1bn (£500m) a year, are certainly great, the merger also raises the question of how effectively they’ll be able to continue operating during their integration," he said.

"The online advertising business requires significant levels of account service and even the perception of a diversion could wind up delivering business to their competitors."

Competition authorities on both sides of the Atlantic will want to take a look at the issues around the potential deal.

"Antitrust laws are also a concern with any deal of this size. While the current US administration is less likely to pose a problem, in recent years the European Union has aggressively policed similar mergers," said Frank.

A key factor in the proposed acquisition is the rapid growth of online advertising. According to Microsoft, the market was worth $40bn (£20bn) last year, and is forecast to double in size to $80m (£40bn) in 2010. A merger of Microsoft and Yahoo would compete more aggressively with market leader Google.