Microsoft made a proposal to the Board of Directors of Yahoo! to acquire the company for $44.6 billion in cash and stock. The deal would work out to a 62% premium for Yahoo! shareholders at $31 per share. Rumors of Yahoo! being acquired have been flying since May 2007 with a valuation of $50 billion. The problem with a Microsoft acquisition of Yahoo! is that Yahoo! needs help and Microsoft has lost its ability to innovate.

The Yahoo! Board of Directors said that they will evaluate the unsolicited proposal from Microsoft “in the context of Yahoo!’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.”

This is purely an advertising inventory and traffic-share play by Microsoft. Microsoft has the cash to float Yahoo! for a while just like it does will all of its new business units. Back in November, Microsoft’s Kevin Johnson outlined Microsoft’s web strategy for the next 3 to 5 years. An acquisition of Yahoo! plays right in to these goals. But the acquisition will only keep Yahoo! alive in its current state for just slightly longer than it would survive on its own.

News Corp. is rumored to be preparing their own bid. They were in talks with Yahoo! back in the middle of 2007, but then the deal involved News Corp. selling off Myspace in exchange for a 25% stake in Yahoo!.

Microsoft CEO Steve Balmer is meeting with financial analysts at 8:00AM EST on Monday to presumably discuss the deal.

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