One of the biggest takeovers that the corporate world has ever seen could be on the cards now that Microsoft has confirmed an acquisition bid for Yahoo! According to various reports online it had already made what moves towards what it says were negotiations for a 'friendly takeover' late last night but this was flatly rejected by Yahoo! Mind you, $44.6 billion doesn't sound too unfriendly to me it has to be said, and that's what I understand Microsoft is offering in terms of cash and share options for the business.

The offer values Yahoo! at around $31 per share, which represents something in excess of a 62% premium compared to the Yahoo! closing price last night. Although pre-market trading this morning did witness Yahoo! shares jumping a none too shabby 56% off the back of the news, which is $10.71 in real money. Not bad for a business which earlier in the week had announced job cuts of 1000 and an overly cautious fourth quarter earnings report. Indeed, before the Microsoft interest Yahoo! had slipped from having a market cap of more than $100 billion only eight years ago to just $25.6 billion last week. By contrast, Microsoft has generated revenue growth of 15%, earnings growth of 26%, and a return on equity of 35% on average for the last three years. Microsoft's share price has generated shareholder returns of 8% during the last one year period and 28% during the last three year period.

In a formal statement to the Yahoo! board of directors, Microsoft CEO Steve Ballmer says "Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers."

Ballmer also hints at the Google effect with "Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition. Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers. Synergies of this combination fall into four areas:

1. Scale economics: This combination enables synergies related to scale economics of the advertising platform where today there is only one competitor at scale. This includes synergies across both search and non-search related advertising that will strengthen the value proposition to both advertisers and publishers. Additionally, the combination allows us to consolidate capital spending.
   
2. Expanded R&D capacity: The combined talent of our engineering resources can be focused on R&D priorities such as a single search index and single advertising platform. Together we can unleash new levels of innovation, delivering enhanced user experiences, breakthroughs in search, and new advertising platform capabilities. Many of these breakthroughs are a function of an engineering scale that today neither of our companies has on its own.
   
3. Operational efficiencies: Eliminating redundant infrastructure and duplicative operating costs will improve the financial performance of the combined entity.
   
4. Emerging user experiences: Our combined ability to focus engineering resources that drive innovation in emerging scenarios such as video, mobile services, online commerce, social media, and social platforms is greatly enhanced."