Microsoft has launched a $44.6bn bid to buy Yahoo, a potential deal seen as the latest sign that the software giant is desperate to increase its online capabilities to tackle Google's growing presence.
"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," said Microsoft CEO Steve Ballmer.
Microsoft is offering a 61 percent premium on Yahoo's closing price yesterday, with its bid amounting to $31 per share.
Yahoo was a driving force behind the growth of the internet in the late nineties and remains a major competitor online. As well as its search engine and portal, the company has been seeking to boost its online advertising business, an area currently dominated by Google.
However, earlier this week, Yahoo announced a 23 percent fall in profits and announced 1,000 job cuts. Microsoft said the proposed acquisition would lead to a "more efficient" company with total annual synergies of $1bn.
"Our lives, our businesses, and even our society have been progressively transformed by the web, and Yahoo has played a pioneering role by building compelling, high-scale services and infrastructure," said Ray Ozzie, chief software architect at Microsoft.
The bid comes hours after Yahoo announced that Terry Semel was stepping down as non-executive chairman, six months after handing over his CEO title to Jerry Yang.
Semel is leaving the board effective immediately, Yahoo announced yesterday. He will be replaced as non-executive chairman by another board member, Roy Bostock, the company said.
Semel was chairman and CEO of Yahoo for six years until he was replaced in a management shuffle last June. Yang, one of Yahoo's co-founders, was made CEO, and Semel was demoted to non-executive chairman.
As CEO, Semel helped to build Yahoo's audience from 170 million to more than 500 million users. But he was also blamed for missteps that allowed Google to build a commanding lead in online search and advertising, prompting last year's reorganisation.
"With the company moving forward under new leadership, I believe this is an appropriate time for me to step down from the board," Semel said.
He approached the board several months ago about leaving once a replacement could be found, Yahoo said.
Bostock has a long history in the advertising industry, "an area that is more important than ever to Yahoo's business and our long term success," the company said.
This week Yahoo reported that net income for its fourth quarter declined to $206m, from $269m a year earlier.