Microsoft Defends Yahoo Bid After Google Blast

If Microsoft acquires Yahoo, the combined company should realize $1 billion in “synergies,” Microsoft chief executive Steven Ballmer said today. Ballmer also responded to criticism of the deal from chief rival Google.

Synergy is often a euphemism for cuts, but Ballmer emphasized the Microsoft-Yahoo deal is more about growth than cost savings.

“It’s not primarily about scaling down. It’s about scaling up,” Ballmer said during a presentation to investors, accompanied by Chris Liddell, Microsoft’s chief financial officer. Ballmer’s remarks come after Microsoft last week made a bid to purchase Yahoo for $44.6 billion in a deal that has major ramifications for online advertising and marketing.

Ballmer said criticism from Google and others that the Microsoft-Yahoo deal would be bad for the Internet was misguided.

“We think the combination of Yahoo and Microsoft creates a more competitive marketplace… Google has about 75 percent of paid search worldwide,” Ballmer said. “This [deal] enhances competition.”

Ballmer also said Microsoft and Yahoo, combined, probably have less than 20 percent of the consumer e-mail accounts in the United States.

Over the weekend, Google went on the offensive.

Expressing concerns that Microsoft could “exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC,”Google’s chief legal officer David Drummond questioned Microsoft’s “hostile bid” in a post to Google’s corporate blog Friday. “Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ e-mail, IM, and web-based services” he asked. “Policymakers around the world need to ask these questions — and consumers deserve satisfying answers.”

Microsoft general counsel Brad Smith later responded in a statement, “The combination of Microsoft and Yahoo! will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising. The alternative scenarios only lead to less competition on the Internet.”

Looming in the background are Microsoft’s attempts at blocking Google’s own controversial acquisition of ad management firm DoubleClick. In a hearing before a U.S. Senate Judiciary Subcommittee last year, Smith suggested the combined firms could hamper consumer privacy by creating the “largest database of user information the world has ever known.”

At today’s news conference, Ballmer and Liddell were asked if Microsoft considered offering $44.6 billion in cash instead of the cash and stock offer. Liddell said Microsoft will likely borrow for the first time to help finance the purchase, and suggested the split between cash and stock was a good balance. “There’s enough technical risk in this business. We don’t have a strong appetite for financial risk,” Ballmer added.

Kate Kaye contributed reporting.

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