Now thats what i call a takeover

There are small takeovers. There are big ones. And then there’s Microsoft’s offer to takeover Yahoo - announced this morning! The price tag is a cool £22.4bn. This deal looks like it could be a fantastic case study for business teachers and students, raising all kinds of issues about fair competition, growth strategy, economies of scale and competitive response (what will Google do?).

Microsoft’s $31 a share bid for Yahoo is mainly aimed at creating a combined online advertising business to rival market leader Google. There has been speculation for months about the two businesses merging - and now it looks like it might finally happen!

Microsoft’s offer represented a premium of around 60% on Yahoo’s pre-offer share price - which had recently been falling due to successive profit falls:

Microsoft estimates that the online advertising market will grow from $40bn in 2007 to nearly $80bn by 2010 and as the market grows, advertising platforms will consolidate. Yahoo, for instance, was once the clear market leader in online search, but now controls just 17.7% of the US search market compared with Google’s 56.3%. Microsoft has already said in public statements that a merger could generate synergies of $1bn, and provide significant economies of scale. The history of previous mega-mergers and takeovers hints that early predictions of cost savings tend to be over-optimistic!

The financial press will follow this story closely. We’ll pick up on the major developments in the blog too.

Initial coverage of the takeover bid

BBC News Microsoft and Yahoo’s shotgun marriage

Financial Times Microsoft offers $44.6bn for Yahoo

BBC News audio-visual clip on the takeover bid