CNBC.com

Microsoft's take-out play for Yahoo is a stunning move by the world's largest software maker, even though rumors of a deal have been swirling for the better part of a year.

The 62 percent premium Microsoft

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[MSFT  Loading...      ()   ] is willing to pay for Yahoo, valuing the deal at a shade under $45 billion, shows just how serious--and just how frustrated--Microsoft has become with Yahoo

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[YHOO  Loading...      ()   ] . So for all you Yahoo shareholders already at wit's end with your company and its downward spiral, isn't it comforting to know that you're not alone; that Mr. Softy shares your pain?

I've spoken to a number of folks inside Microsoft this morning, and the most amazing part of this story is how long it has been going on. I was told that talks between the two had been going on, at a serious level, for almost 18 months, and that any time a transaction got close, Yahoo pulled the plug.

Over and over again. In fact, in Microsoft's release this morning, the company details a snippet of those exchanges, by including a letter Microsoft CEO Steve Ballmer wrote about his exchange with then Yahoo CEO Terry Semel, writing: "In February 2007, I received a letter from your Chairman indicating the view of the Yahoo! Board that "now is not the right time from the perspective of our shareholders to enter into discussions regarding an acquisition transaction."

According to that letter, the principal reason for this view was the Yahoo! board's confidence in the 'potential upside' if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment. A year has gone by, and the competitive situation has not improved."

Sounds very similar to the ongoing complaints I have heard from people who are already Yahoo shareholders!

And with similar rebuffs from Jerry Yang--or none at all (since I'm hearing Yahoo stopped even entertaining the concept of a Microsoft take-out, which leads me to wonder where Yahoo's fiduciary responsibility went) Microsoft now wants to own the whole enchilada. The deal for both sides makes a lot of sense. It's a bold step for Microsoft; and Yahoo needs deep pockets to figure out a way to make money from those 2 billion monthly visitors the site attracts. And the two need to do something to take on Google.

I'm not sure even a combined Microsoft/Yahoo offers a serious threat to Google

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[GOOG  Loading...      ()   ] . Maybe it slows Google's growth but I don't believe that Google's at risk of losing the dominant position it owns in Search. Further, this could be a positive for Google for the foreseeable future in two key ways: Either the take-out becomes a prolonged, hostile event with the two companies bickering over price while key talent walks out the door at Yahoo; or, the deal gets done in a reasonable amount of time and Yahoo and Microsoft spend the next year working on integration issues.

Either way, both scenarios suggest Microsoft and Yahoo will both be horribly distracted by all this, while Google continues to lurk in the background, and in the marketplace, innovating and doing what it's been doing. Eating up market share as quickly and as dominantly as it has.

I'll be updating the blog through the day so check back when you can. This drama and all its side-acts will be a blast to watch.

--CNBC.com has business relationships with both Yahoo and Microsoft.

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