"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, as the Redmond giant announced today that it has proposed to the Yahoo! Inc. Board of Directors to acquire all the outstanding shares of Yahoo! common stock for per share consideration of $31 representing a total equity value of approximately $44.6 billion.

"We have great respect for Yahoo!," said Steve Ballmer, chief executive officer of Microsoft, "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. We believe our combination will deliver superior value to our respective shareholders and better choice and innovation to our customers and industry partners."

In a statement, Microsoft reveled that ithas developed a plan and process "that will include the employees of both companies to focus on the integration of the combined business."

"Microsoft intends to offer significant retention packages to Yahoo! engineers, key leaders and employees across all disciplines," the statement said, adding:

"The combination will create a more efficient company with synergies in four areas: scale economics driven by audience critical mass and increased value for advertisers; combined engineering talent to accelerate innovation; operational efficiencies through elimination of redundant cost; and the ability to innovate in emerging user experiences such as video and mobile. Microsoft believes these four areas will generate at least $1 billion in annual synergy for the combined entity."

The full text of the letter that Microsoft sent to Yahoo!'s Board of Directors is here.

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