World’s richest person Bill Gates-founded Microsoft said its 31 dollars per share offer values Yahoo at about 44.6 billion dollars in cash and stock.

The takeover bid for Yahoo comes amid a below-expected fourth quarter performance and growing competition for the two companies from fast-growing Google in the online market.

The online advertising market is growing at a very fast pace, from over 40 billion dollars in 2007 to nearly 80 billion dollars by 2010. With Google emerging as one of the biggest beneficiary of this market, the analysts believe that a combination of Microsoft and Yahoo was imminent to take on the competition from the internet search giant.

The speculations have been doing the rounds for quite a few months about the merger of the two giants. The combined entity would create a more competitive firm, providing superior value to shareholders, better choice and innovation for customers and partners, Microsoft said.

Microsoft’s proposal would allow Yahoo shareholders to OPT cash or a fixed number of Microsoft shares, with the total consideration payable to Yahoo shareholders consisting of one-half cash and one-half Microsoft common stock. The offer represents a 62 per cent premium above the closing price of Yahoo shares on January 31.
The company said it believes the proposed combination would receive all necessary regulatory approvals and the transaction would be completed in the second half of calendar year 2008.

Microsoft said it intends to offer significant retention packages to Yahoo engineers, key leaders and employees across all disciplines. The offer was disclosed first to a letter sent to Yahoo Board of Directors on January 31 by Microsoft CEO Steven Ballmer.

Indicating a previous attempt as well to acquire Yahoo, Ballmer said, “In February 2007, I received a letter from your Chairman indicating the view of the Yahoo Board that “now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction.”