Microsoft to borrow money to cover Yahoo bid

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Microsoft to borrow money to cover Yahoo bid

Microsoft's imminent acquisition of Yahoo has the potential to significantly alter the power play of the Internet; but just how keen is the software giant?

Any doubts concerning the legitimacy of the $44.6 billion bid for Yahoo were put to rest when Microsoft announced it may borrow money to fund a portion of the offer. If the acquisition is successful, it will be the first time Microsoft has acquired debt to close a business deal.

“It’s likely we're actually going to borrow for the first time,” said Chris Liddell, chief financial officer, Microsoft. “It's going to be a mixture of the cash we have on hand plus debt.”

Microsoft’s decision to offer a 50 percent stock and cash split to Yahoo is being hailed as a financially strategic move by analysts.

“Microsoft can probably get a lower price of debt than equity,” said Kim Caughey, senior analyst, Fort Pitt Capital Group. “I've often wondered why Microsoft sits on the pile of cash. It doesn't make a lot of financial sense.”

While it may appear that a merger is imminent, there are suggestions Google is attempting to coax Yahoo into remaining independent. Yahoo is aware that being the meat in a Microsoft/Google sandwich has placed the company in an auspicious position and is keeping the suitors at bay as it weighs up its various options. Steve Ballmer, chief executive, Microsoft stated that the offer is generous and Yahoo would be wise to act quickly.

“We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path,” said Ballmer.

The acquisition will aid Microsoft in infiltrating the digital advertising market over which Google currently has a stronghold. Reuters Estimates predicts that, on average, Microsoft’s revenue will grow 10 percent to $US66.4 billion in 2009 from an estimated $US60.2 billion in the current year.

"We are on a path - we were on a path and we will stay on that path regardless," said Ballmer.
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