Microsoft Corp., the world’s largest maker of software, has announced that it had made a proposal to the Yahoo! board of directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion. If Microsoft takes over Yahoo!, it will obtain not only online services of the latter, but will also get hundreds of millions of Yahoo! customers.

“We have great respect for Yahoo!, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market. We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners,” said Steve Ballmer, chief executive officer of Microsoft.

Microsoft’s offer represents a 62% premium above the closing price of Yahoo! common stock on January 31, 2008. After Microsoft made the bid, Yahoo! stock increased substantially and at press time they cost $29.39, bringing market capitalization of the company to $40.99 billion.

The combination of Microsoft and Yahoo is projected to create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.

Microsoft said it had developed a plan and process that will include the employees of both companies to focus on the integration of the combined business. Microsoft intends to offer significant retention packages to Yahoo! engineers, key leaders and employees across all disciplines.

On the one hand, Microsoft may integrate Yahoo! into itself relatively easily in several years, however, it is not certain whether Microsoft succeed in execution of its own roadmap while it is working hard to integrate Yahoo! into itself.

Microsoft believes this proposed combination would receive all necessary regulatory approvals and expects that the proposed transaction would be completed in the second half of calendar year 2008.

Yahoo! said that it has received the proposal from Microsoft to acquire the company and indicated that its 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.