• by Wendy Davis , Staff Writer @wendyndavis, February 1, 2008

After months -- if not years -- of behind-the-scenes negotiations, Microsoft this morning went public with a proposal to buy Yahoo in hopes of more effectively competing against Google.

In a letter to the Yahoo board of directors, Microsoft CEO Steve Ballmer offered $44.6 billion for the company, or $31 per share -- marking a 62% premium over yesterday's $19 closing price.

"Today, the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Ballmer wrote. "Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers, and publishers."

This isn't the first time Microsoft has tried to buy Yahoo. Ballmer in his letter to the board referred to a February 2007 offer, rejected by former CEO Terry Semel. At the time, Semel told Ballmer that Yahoo wanted to see if recent initiatives, including the new paid search platform Project Panama, would yield dividends.

"A year has gone by, and the competitive situation has not improved," Ballmer wrote to the board.

Semel, who stepped down as CEO last June, resigned from the Yahoo board of directors yesterday, shortly before Ballmer's letter was made public.

As of this morning, it's not clear how Yahoo's board will react to the offer, but some observers and pundits think it's inevitable that the company will accept. Writing in The New York Times, Saul Hansell predicts that Yahoo will accept because "Microsoft is paying more than anyone else would be willing to pay for Yahoo."

At the same time, it's still possible that other companies could swoop in and outbid Microsoft. And even if Yahoo accepts the deal, regulators -- both in the United States and Europe -- might challenge it.

The Federal Trade Commission cleared Google's purchase of DoubleClick late last year, but European authorities haven't yet decided whether to approve the deal. While news of a Yahoo-Microsoft merger could push European regulators into clearing Google-DoubleClick, it could also potentially slow down the process. If European authorities are mulling restrictions on a combined Google-DoubleClick, the news today should at least inject new considerations into that decision.