In a bold bid to challenge Google’s dominance in the vibrant online space Microsoft Corp made an unsolicited takeover offer of $44.6 billion cash and stock bid for Yahoo on Friday.

The surprise offer of $31 per share, made late Thursday and announced Friday, comes with Sunnyvale-based Yahoo in a vulnerable position.

With its profits steadily sliding, Yahoo's stock slipped to a four-year low earlier this week and a new management team has been trying to steer a turnaround but sees more turbulence through 2008.

In a letter to Yahoo's board of directors, Microsoft Chief Executive Steve Ballmer indicated the world's largest software maker is determined to bring the two companies together. Ballmer revealed in the letter that Yahoo had rebuffed a previous overture a year ago, saying it had a turnaround in the works. But he pointedly noted Yahoo has instead deteriorated significantly. "A year has gone by, and the competitive situation has not improved," Ballmer added.

Microsoft said it sees at least $1 billion in cost savings generated by the combination, and intends to offer significant retention packages to Yahoo engineers, key leaders and employees.
Microsoft's previous offer was rebuffed by Terry Semel, who stepped aside last year as chief executive under shareholder pressure.

Microsoft sent its latest takeover offer to Yahoo late Thursday, shortly after Semel resigned as the company's chairman. The letter is addressed to Semel's successors, new Chairman Roy Bostock and the current CEO, co-founder Jerry Yang, who is one of Yahoo's largest shareholders.

"Microsoft's consistent belief has been that the combination of Microsoft and Yahoo! clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers," Ballmer wrote.

A statement issued by Yahoo said its board "will evaluate this proposal carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders."

The software giant said it believes the takeover would receive regulatory clearance and close in the second half of 2008.