Microsoft offers to buy Yahoo! for £22.4bn

Microsoft has said today that it has formally offered to buy Yahoo! for a whopping $44.6 billion (£22.4 billion) in cash and stock. If the deal goes through, it would be the biggest Internet deal since the Time Warner-AOL merger.

"This proposal represents a compelling value realization event for your shareholders," said Steve Ballmer, Microsoft's chief executive, in a letter sent to Yahoo's board on Thursday.

The offer doesn't come as much of a surprise, given the rumours that have been circulating since May 2006, even though when the rumours resurfaced a year later, Microsoft was quick to quash them.

In the last year, Yahoo! has really struggled in an online market largely dominated by Google and during that period its share price dropping almost 32 percent. Microsoft has also been struggling to put the fight to Google, so it seemed increasingly likely that the two might team up to create the Internet giant's most formidable competitor to date.

The European Commission, the watchdog that is currently investigating Microsoft on antitrust charges relating to various technologies and products the company ties into Windows, refused to comment on the move.

"We have no comment," said Jonathan Todd, a spokesman for EU Competition Commissioner Neelie Kroes. Regardless, with a deal of this magnitude, there's no question that it would require European Commission clearance before it went ahead.

Just last night, Terry Semel, non-executive chairman of Yahoo! stepped down from the board of directors - he will be replaced by Roy Bostock. "Terry Semel has been a great partner and true friend, and has played a key role in helping to grow Yahoo!'s business - and industry-leading audience - over the past seven years," said Yang. "He also has been a tremendously valuable resource in recent months, as our new management team developed and began to execute our strategic growth plans. On behalf of the entire Board, I want to thank Terry for his many contributions to Yahoo! over the years - and for helping to lay a firm foundation for future success and improved financial performance."

Update 14:00 GMT
Yahoo! has just acknowledged the receipt of the offer from Microsoft in a statement that says "[Yahoo!'s] Board of Directors will evaluate this proposal carefully and promptly in the context of Yahoo!'s strategic plans and pursue the best course of action to maximize long-term value for shareholders."

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