Microsoft Yoohoo for Yahoo!

In a move that could change the pecking order of the Internet search and advertising marketplace, Microsoft has made an unsolicited bid to purchase ailing Yahoo. In a letter sent to Yahoo's board of directors, Microsoft offered $44.6 billion in cash and stock for the troubled company; what's more, it has also been revealed that Microsoft explored an offer a year previous only to be rebuffed by Yahoo because of their confidence in the operational changes they were making at the time. (Source: cnn.com)

The last year, however, has been difficult for Yahoo. Their new ad delivery platform was delayed, Terry Semel, their CEO was forced to step down, and its share prices have steadily dropped. Yahoo shares have lost more than 30% of their value since November of last year. Yahoo's earnings in the 4th quarter and sales forecast for 2008 followed the company's Tuesday announcement that it would be laying off 1,000 employees by mid-February, the first reduction-in-force ever experienced by the company. These events immediately triggered speculation that Yahoo would be acquired. (Source: marketwatch.com)

Historically, Microsoft has shied away from large acquisitions. Nonetheless, a Yahoo absorbed by Microsoft would change the rules of the search industry and could effect a better competitive front to Google. Even with only half of Google's online revenues, Yahoo remains a strong contender in content aggregation and in building online communities. If the search engine itself was fortified it could greatly benefit Microsoft's user and consumer orientation.

The problem is that some analysts think that Microsoft could not handle the level of effort needed to integrate Yahoo into its operations and already has too much on its plate. They worry that absorbing Yahoo might weaken Microsoft's Windows and Office products just as new alternative applications are emerging on the market. (Source: informationweek.com)

Regardless, the stock has already responded well to the possibility of a takeover. The rest of the market, however, will have to hold their breath to see what happens next.