Microsoft offered to buy Yahoo Inc. for 44.6 billion in cash and stock, a deal that could strongly influence the Internet search market. The deal would pay Yahoo's shareholders $ 31 a share which represents a 62% premium over Yahoo's closing stock price on Thursday.

Yahoo said in a news release that its board would evaluate Microsoft proposal “carefully and promptly”. Microsoft planned to work closely with Yahoo's board as they evaluate the offer.

Despite of their heavy investments in online services, Yahoo and Microsoft have dropped behind Google. Google's participation in the search market and online advertising business has continued to expand.

“We believe our combination will deliver superior value to our respective shareholder and better choice and innovation to our customer and industry partners,” said Steven A. Ballmer, Microsoft chief executive, in a statement.

In a letter to Yahoo's board, Microsoft exposed that two companies previously discussed a possible merger, as well as other ways to work together, in late 2006 and 2007. Yahoo decided to cease the discussions because its board was confident in company's “potential upside”.

“A year has gone by, and the competitive situation has not improved,” said Mr Ballmer. He believes that the only alternative now is the combination of Microsoft and Yahoo that they are proposing.

On Tuesday, current nonexecutive chairman and former Yahoo chief executive Terry Semel left Yahoo board. He was one of the opponents to an earlier approach Microsoft made last year.

Yahoo stated lower fourth-quarter earnings and announced to dismiss 1,000 employees to reduce its expenses.

Yahoo is currently an important supporter of open source projects. In September last year the company acquired Zimbra, a direct competitor to Microsoft's Outlook and Exchange suites.

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