Mumbai: The world's largest software company Microsoft Corp. has made an unsolicited bid for Yahoo! Inc., at a share price of $31 per share, making the total offer value  around $44.6 billion.

The offer is at a 62 per cent premium to Yahoo's closing stock price of $19 on 31 January 2008, Microsoft said in a statement.

Yahoo! shareholders have the option of choosing either cash or stock, according to Microsoft.

Yahoo!'s shares have slid 32 per cent this year, and the offer, besides being the largest ever proposed acquisition by Microsoft, has the potential of creating the ''most formidable competitor yet'' for Google, the search engine giant, according to the New York Times.

''This proposal represents a compelling value realization event for your shareholders,'' Steven A. Ballmer, Microsoft's chief executive, said in a letter to Yahoo!'s board sent Thursday.

Microsoft and Yahoo! have been collaborating to find ways of working together since some years now, specially 2006 – 2007, though Yahoo! had ruled out earlier proposals for merging with Microsoft.

''Although the synergies between the two companies, which Microsoft asserts are worth at least $1 billion a year, are certainly great, the merger also raises the question of how effectively they'll be able to continue operating during their integration," commented Andrew Frank, research vice president at Gartner.

The New York Times reports that Microsoft's announcement was ''unsolicited and its premium unusually high, marking it as an aggressive bid that could turn hostile.''

Yahoo! has a traffic rank of 1, according to web information company Alexa.com, which also says that it has been online since 18 January, 1995. Alexa ranks Google's traffic at 2.

In its statement, Ballmer said, "We have great respect for Yahoo!, 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."

The statement also cited Ray Ozzie, chief software architect at Microsoft, as saying "Our lives, our businesses, and even our society have been progressively transformed by the Web, and Yahoo! has played a pioneering role by building compelling, high-scale services and infrastructure. 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."

Microsoft's statement said, ''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,'' squarely indicating Google.

''Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners,'' the statement added.

In his letter to the board, Steve Ballmer has cited the combination of Microsoft and Yahoo! and having the potential to 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.

However, Fink says, "The online advertising business requires significant levels of account service and even the perception of a diversion could wind up delivering business to their competitors," he said.

Microsoft expects the proposed combination to receive all necessary regulatory approvals, indicating that the proposed transaction would be completed sometime in the second half of calendar year 2008.

Fink, however says ''Antitrust laws are also a concern with any deal of this size. While the current US administration is less likely to pose a problem, in recent years the European Union has aggressively policed similar mergers.''