Microsoft Corp. has offered to buy Yahoo Inc. for around US$44.6 billion in cash and shares, to better compete with Google in the market for online services. CEO Steve Ballmer made the offer in a letter to Yahoo's board of directors on Thursday, telling the board that he would release the letter Friday morning. On a conference call Friday, Ballmer called a combination of Microsoft and Yahoo a more "credible" alternative to Google in the online advertising and services market. "By combining the assets of Microsoft and Yahoo we can offer a more competitive choice for consumers, advertisers and publishers," he said. It was Yahoo's board that first approached Microsoft, in February 2007, Microsoft said. Yahoo, in a statement, said its board will carefully evaluate Microsoft's proposal, which it described as unsolicited. Microsoft expects the market for online advertising to almost double in size over the next three years, from $40 billion in 2007 to $80 billion by 2010. A merger will allow it to realize economies of scale and reduce capital costs as it addresses this market, it said. "The combination of these two great teams would enable us to jointly deliver a broad range of new experiences to our customers that neither of us would have achieved on our own," said Ray Ozzie, chief software architect at Microsoft, in a statement. Microsoft expects to cut costs by $1 billion a year by realizing synergies with Yahoo in four areas: obtaining economies of scale as its audience increases; combining its research and development efforts with Yahoo's to innovate faster; eliminating operational redundancy to cut costs, and pooling expertise to innovate in video and mobile. The companies will work together to develop the merger plan, Microsoft said. It intends to pay key Yahoo engineers and other staff to stay following the merger. | 
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