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Microsoft Corp. (NASDAQ:MSFT) has proposed an acquisition of Yahoo! (NASDAQ:YHOO) for $31 per share or at apporximately $44.6 billon in cash and stock. Microsoft has offered a 62 percent premium to current trading price for Yahoo! shareholders on their shares to sell the company. Microsoft’s proposal would allow the Yahoo! shareholders to elect to receive cash or a fixed number of shares of Microsoft common stock, with the total consideration payable to Yahoo! shareholders consisting of one-half cash and one-half Microsoft common stock.
Yahoo’s latest disappointing earnings announcement helped to depress the stock price, making it a renewed target for a takeover.

The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners.

In the letter, Ballmer noted how a February 2007 proposal to acquire Yahoo had been rebuffed by the board, as they believed in the "potential upside" of a management strategy that included the debut of the reworked search advertising product, dubbed Project Panama.

Specifically, Microsoft says the combined companies will create a more efficient company with synergies in four areas:

Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity.

You can follow this link to read the offering letter sent to Yahoo!’s Board of Directors:
Microsoft Proposes Acquisition of Yahoo! for $31 per Share