Microsoft have offered US$ 31 a share for Yahoo , half and half, stock / cash.
At 31/12/08 Microsoft had US$21,076,000 cash at the bank so they can afford this US$44.6 Bn. deal , which is at a mind boggling premium of 62% of Yahoo's closing price on Thursday. ( MSN paid US$6 Bn. (Mkt Cap US2.4 Bn pre bid) last May for online advertising specialist aQuantive)
On Friday Yahoo closed out at US$28.38 up 48% which gave it a P/E of 60.38 and a Market cap of US$37.93 Bn.
Microsoft closed out at US$30.45 down 6.6% with a P/E of 17.32 and a Market cap of US$283 Bn.
So by spending all their cash pile, diluting their stock Microsoft can boost their current share of the search market to just over 30%.
Remember that MSN were late into the search market and they have doubled their share of the market since year end 2006.
There appears little synergy between Yahoo (who laid off 1,000 of its 14,300 workers this week) and MSN (79.000 employees) , this is a case where 2 + 2 does not necessarily = 4... and Google (7,000 employees) have an unstoppable, superb global model, constantly refined and improved which serachers choose because it produces the results they want.
Frankly the sages of Seattle have no choice, the market for bloated software is over, Vista has been a disaster.. they need to get a bigger share of the global search pie with it's attendant revenues and they need it fast.
Five years down the line this will be seen as a masterstroke. MSN will be a leaner, fitter machine... first thing they need to do is buy Blinkx.