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Microsoft Proposes Acquisition of Yahoo! for $31 per Share
Transaction valued at approximately $44.6 billion in cash and stock; =
provides 62 percent premium to current trading price for Yahoo! =
shareholders; combined entity to create a more competitive company, =
providing superior value to shareholders, better choice and innovation =
for customers and partners
    =20
REDMOND, Wash. =E2=80=94 Feb. 1, 2008 =E2=80=94 Microsoft Corp. =
(NASDAQ:MSFT) today announced that it has made a proposal to the Yahoo! =
Inc. (NASDAQ:YHOO) Board of Directors to acquire all the outstanding =
shares of Yahoo! common stock for per share consideration of $31 =
representing a total equity value of approximately $44.6 billion. =
Microsoft=E2=80=99s proposal would allow the Yahoo! shareholders to =
elect to receive cash or a fixed number of shares of Microsoft common =
stock, with the total consideration payable to Yahoo! shareholders =
consisting of one-half cash and one-half Microsoft common stock. The =
offer represents a 62 percent premium above the closing price of Yahoo! =
common stock on Jan. 31, 2008.=20

=E2=80=9CWe 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,=E2=80=9D said Steve Ballmer, chief executive officer of =
Microsoft. =E2=80=9CWe believe our combination will deliver superior =
value to our respective shareholders and better choice and innovation to =
our customers and industry partners.=E2=80=9D=20

=E2=80=9COur 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,=E2=80=9D said Ray Ozzie, chief software architect at =
Microsoft. =E2=80=9CThe 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.=E2=80=9D

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

=E2=80=9CThe combined assets and strong services focus of these two =
companies will enable us to achieve scale economics while reaching R&D =
critical mass to deliver innovation breakthroughs,=E2=80=9D said Kevin =
Johnson, president of the Platforms & Services Division of Microsoft. =
=E2=80=9CThe industry will be well served by having more than one strong =
player, offering more value and real choice to advertisers, publishers =
and consumers.=E2=80=9D=20

The combination will 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.=20

Microsoft has developed a plan and process that will include the =
employees of both companies to focus on the integration of the combined =
business. Microsoft intends to offer significant retention packages to =
Yahoo! engineers, key leaders and employees across all disciplines.

Microsoft believes this proposed combination would receive all necessary =
regulatory approvals and expects that the proposed transaction would be =
completed in the second half of calendar year 2008.

Microsoft is also committed to working closely with Yahoo! management =
and its Board of Directors as they, along with Yahoo! shareholders, =
evaluate this compelling proposal.=20

Below is the text of the letter that Microsoft sent to Yahoo!=E2=80=99s =
Board of Directors:


January 31, 2008



Board of Directors
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089
Attention: Roy Bostock, Chairman
Attention: Jerry Yang, Chief Executive Officer


Dear Members of the Board:

I am writing on behalf of the Board of Directors of Microsoft to make a =
proposal for a business combination of Microsoft and Yahoo!. Under our =
proposal, Microsoft would acquire all of the outstanding shares of =
Yahoo! common stock for per share consideration of $31 based on =
Microsoft=E2=80=99s closing share price on January 31, 2008, payable in =
the form of $31 in cash or 0.9509 of a share of Microsoft common stock. =
Microsoft would provide each Yahoo! shareholder with the ability to =
choose whether to receive the consideration in cash or Microsoft common =
stock, subject to pro-ration so that in the aggregate one-half of the =
Yahoo! common shares will be exchanged for shares of Microsoft common =
stock and one-half of the Yahoo! common shares will be converted into =
the right to receive cash. Our proposal is not subject to any financing =
condition.=20

Our proposal represents a 62% premium above the closing price of Yahoo! =
common stock of $19.18 on January 31, 2008. The implied premium for the =
operating assets of the company clearly is considerably greater when =
adjusted for the minority, non-controlled assets and cash. By whatever =
financial measure you use - EBITDA, free cash flow, operating cash flow, =
net income, or analyst target prices - this proposal represents a =
compelling value realization event for your shareholders.=20

We believe that Microsoft common stock represents a very attractive =
investment opportunity for Yahoo!=E2=80=99s shareholders. Microsoft has =
generated revenue growth of 15%, earnings growth of 26%, and a return on =
equity of 35% on average for the last three years. Microsoft=E2=80=99s =
share price has generated shareholder returns of 8% during the last one =
year period and 28% during the last three year period, significantly =
outperforming the S&P 500. It is our view that Microsoft has significant =
potential upside given the continued solid growth in our core =
businesses, the recent launch of Windows Vista, and other strategic =
initiatives.=20

Microsoft=E2=80=99s 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. In late 2006 and early 2007, we jointly explored a broad =
range of ways in which our two companies might work together. These =
discussions were based on a vision that the online businesses of =
Microsoft and Yahoo! should be aligned in some way to create a more =
effective competitor in the online marketplace. We discussed a number of =
alternatives ranging from commercial partnerships to a merger proposal, =
which you rejected. While a commercial partnership may have made sense =
at one time, Microsoft believes that the only alternative now is the =
combination of Microsoft and Yahoo! that we are proposing.=20

In February 2007, I received a letter from your Chairman indicating the =
view of the Yahoo! Board that =E2=80=9Cnow is not the right time from =
the perspective of our shareholders to enter into discussions regarding =
an acquisition transaction.=E2=80=9D According to that letter, the =
principal reason for this view was the Yahoo! Board=E2=80=99s confidence =
in the =E2=80=9Cpotential upside=E2=80=9D 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.=20

While online advertising growth continues, there are significant =
benefits of scale in advertising platform economics, in capital costs =
for search index build-out, and in research and development, making this =
a time of industry consolidation and convergence. Today, the market is =
increasingly dominated by one player who is consolidating its dominance =
through acquisition. Together, Microsoft and Yahoo! can offer a credible =
alternative for consumers, advertisers, and publishers. Synergies of =
this combination fall into four areas:

Scale economics: This combination enables synergies related to scale =
economics of the advertising platform where today there is only one =
competitor at scale. This includes synergies across both search and =
non-search related advertising that will strengthen the value =
proposition to both advertisers and publishers. Additionally, the =
combination allows us to consolidate capital spending.

Expanded R&D capacity: The combined talent of our engineering resources =
can be focused on R&D priorities such as a single search index and =
single advertising platform. Together we can unleash new levels of =
innovation, delivering enhanced user experiences, breakthroughs in =
search, and new advertising platform capabilities. Many of these =
breakthroughs are a function of an engineering scale that today neither =
of our companies has on its own.

Operational efficiencies: Eliminating redundant infrastructure and =
duplicative operating costs will improve the financial performance of =
the combined entity.=20

Emerging user experiences: Our combined ability to focus engineering =
resources that drive innovation in emerging scenarios such as video, =
mobile services, online commerce, social media, and social platforms is =
greatly enhanced.=20

We would value the opportunity to further discuss with you how to =
optimize the integration of our respective businesses to create a =
leading global technology company with exceptional display and search =
advertising capabilities. You should also be aware that we intend to =
offer significant retention packages to your engineers, key leaders and =
employees across all disciplines.

We have dedicated considerable time and resources to an analysis of a =
potential transaction and are confident that the combination will =
receive all necessary regulatory approvals. We look forward to =
discussing this with you, and both our internal legal team and outside =
counsel are available to meet with your counsel at their earliest =
convenience.=20

Our proposal is subject to the negotiation of a definitive merger =
agreement and our having the opportunity to conduct certain limited and =
confirmatory due diligence. In addition, because a portion of the =
aggregate merger consideration would consist of Microsoft common stock, =
we would provide Yahoo! the opportunity to conduct appropriate limited =
due diligence with respect to Microsoft. We are prepared to deliver a =
draft merger agreement to you and begin discussions immediately.=20

In light of the significance of this proposal to your shareholders and =
ours, as well as the potential for selective disclosures, our intention =
is to publicly release the text of this letter tomorrow morning.

Due to the importance of these discussions and the value represented by =
our proposal, we expect the Yahoo! Board to engage in a full review of =
our proposal. My leadership team and I would be happy to make ourselves =
available to meet with you and your Board at your earliest convenience. =
Depending on the nature of your response, Microsoft reserves the right =
to pursue all necessary steps to ensure that Yahoo!=E2=80=99s =
shareholders are provided with the opportunity to realize the value =
inherent in our proposal.

We believe this proposal represents a unique opportunity to create =
significant value for Yahoo!=E2=80=99s shareholders and employees, and =
the combined company will be better positioned to provide an enhanced =
value proposition to users and advertisers. We hope that you and your =
Board share our enthusiasm, and we look forward to a prompt and =
favorable reply.=20

Sincerely yours,

/s/ Steven A. Ballmer

Steven A. Ballmer

Chief Executive Officer

Microsoft Corporation


Microsoft will host an analyst/investor conference call at 8:30 a.m. =
Eastern Time/5:30 a.m. Pacific Time to discuss today=E2=80=99s =
announcement. If you want to participate, you may do so by dialing (866) =
610-1072 or (706) 634-9230 (toll/international); the conference ID =
number is 33470390. Please dial in at least 20 minutes in advance of the =
call. Accompanying slides and the conference call Webcast will be =
available at http://www.microsoft.com/presspass. Playback of the =
conference call and the webcast will be available for replay through the =
close of business on Feb. 5, 2008. The replay can be accessed by dialing =
(800) 642-1687 or (706) 645-9291 (toll/international); the conference ID =
number is 33470390.

About Microsoft

Founded in 1975, Microsoft (NASDAQ: MSFT) is the worldwide leader in =
software, services and solutions that help people and businesses realize =
their full potential.


This communication does not constitute an offer to sell or the =
solicitation of an offer to buy any securities or a solicitation of any =
vote or approval. In connection with the proposed transaction, Microsoft =
Corp. plans to file with the SEC a registration statement on Form S-4 =
containing a proxy statement/prospectus and other documents regarding =
the proposed transaction. The definitive proxy statement/prospectus will =
be mailed to shareholders of Yahoo! Inc. INVESTORS AND SECURITY HOLDERS =
OF YAHOO! INC. ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND =
OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY =
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT =
THE PROPOSED TRANSACTION.=20

Investors and security holders will be able to obtain free copies of the =
registration statement and the proxy statement/prospectus (when =
available) and other documents filed with the SEC by Microsoft Corp. =
through the Web site maintained by the SEC at http://www.sec.gov. Free =
copies of the registration statement and the proxy statement/prospectus =
(when available) and other documents filed with the SEC can also be =
obtained by directing a request to Investor Relations Department, =
Microsoft Corp., One Microsoft Way, Redmond, Wash. 98052-6399.=20

Microsoft Corp. and its directors and executive officers and other =
persons may be deemed to be participants in the solicitation of proxies =
in respect of the proposed transaction. Information regarding Microsoft =
Corp.=E2=80=99s directors and executive officers is available in its =
Annual Report on Form 10-K for the year ended June 30, 2007, which was =
filed with the SEC on Aug. 8, 2007, and its proxy statement for its 2007 =
annual meeting of shareholders, which was filed with the SEC on Sept. =
29, 2007. Other information regarding the participants in the proxy =
solicitation and a description of their direct and indirect interests, =
by security holdings or otherwise, will be contained in the proxy =
statement/prospectus and other relevant materials to be filed with the =
SEC when they become available.

Statements in this release that are =E2=80=9Cforward-looking =
statements=E2=80=9D are based on current expectations and assumptions =
that are subject to risks and uncertainties. Actual results could differ =
materially because of factors such as Microsoft Corp.=E2=80=99s ability =
to achieve the synergies and value creation contemplated by the proposed =
transaction, Microsoft Corp.=E2=80=99s ability to promptly and =
effectively integrate the businesses of Yahoo! Inc. and Microsoft Corp., =
the timing to consummate the proposed transaction and any necessary =
actions to obtain required regulatory approvals, and the diversion of =
management time on transaction-related issues. For further information =
regarding risks and uncertainties associated with Microsoft =
Corp.=E2=80=99s business, please refer to the =
=E2=80=9CManagement=E2=80=99s Discussion and Analysis of Financial =
Condition and Results of Operations=E2=80=9D and =E2=80=9CRisk =
Factors=E2=80=9D sections of Microsoft Corp.=E2=80=99s SEC filings, =
including, but not limited to, its annual report on Form 10-K and =
quarterly reports on Form 10-Q, copies of which may be obtained by =
contacting Microsoft Corp.=E2=80=99s Investor Relations department at =
(800) 285-7772 or at Microsoft Corp.=E2=80=99s Web site at =
http://www.microsoft.com/msft.

All information in this communication is as of Feb. 1, 2008. Microsoft =
Corp. undertakes no duty to update any forward-looking statement to =
conform the statement to actual results or changes in the =
company=E2=80=99s expectations.

For more information, press only:

Rapid Response Team, Waggener Edstrom Worldwide, (503) 443-7070, =
rrt@waggeneredstrom.com=20

Note to editors: If you are interested in viewing additional information =
on Microsoft, please visit the Microsoft Web page at =
http://www.microsoft.com/presspass on Microsoft=E2=80=99s corporate =
information pages. Web links, telephone numbers and titles were correct =
at time of publication, but may since have changed. For additional =
assistance, journalists and analysts may contact Microsoft=E2=80=99s =
Rapid Response Team or other appropriate contacts listed at =
http://www.microsoft.com/presspass/contactpr.mspx.

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<H1><FONT face=3D"Microsoft Sans Serif" size=3D5>Microsoft Proposes =
Acquisition of=20
Yahoo! for $31 per Share</FONT></H1>
<H2 class=3Dsubtitle><FONT face=3D"Microsoft Sans Serif" =
size=3D4>Transaction valued=20
at approximately $44.6 billion in cash and stock; provides 62 percent =
premium to=20
current trading price for Yahoo! shareholders; combined entity to create =
a more=20
competitive company, providing superior value to shareholders, better =
choice and=20
innovation for customers and partners</FONT></H2>
<DIV style=3D"HEIGHT: 18px"><FONT face=3D"Microsoft Sans =
Serif"></FONT></DIV>
<TABLE style=3D"MARGIN-LEFT: 15px" cellSpacing=3D0 cellPadding=3D0 =
width=3D165=20
align=3Dright border=3D0>
  <TBODY>
  <TR>
    <TD>
      <DIV class=3DsidebarHeader><FONT face=3D"Microsoft Sans =
Serif"></FONT></DIV>
      <DIV class=3DsidebarFooter><FONT=20
  face=3D"Microsoft Sans Serif"></FONT></DIV></TD></TR></TBODY></TABLE>
<P><FONT face=3D"Microsoft Sans Serif"><B>REDMOND, Wash. =E2=80=94 Feb. =
1, 2008 =E2=80=94=20
</B>Microsoft Corp. (NASDAQ:MSFT) today announced that it has made a =
proposal to=20
the Yahoo! Inc. (NASDAQ:YHOO) Board of Directors to acquire all the =
outstanding=20
shares of Yahoo! common stock for per share consideration of $31 =
representing a=20
total equity value of approximately $44.6 billion. Microsoft=E2=80=99s =
proposal would=20
allow the Yahoo! shareholders to elect to receive cash or a fixed number =
of=20
shares of Microsoft common stock, with the total consideration payable =
to Yahoo!=20
shareholders consisting of one-half cash and one-half Microsoft common =
stock.=20
The offer represents a 62 percent premium above the closing price of =
Yahoo!=20
common stock on Jan. 31, 2008. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">=E2=80=9CWe have great respect =
for Yahoo!, and=20
together we can offer an increasingly exciting set of solutions for =
consumers,=20
publishers and advertisers while becoming better positioned to compete =
in the=20
online services market,=E2=80=9D said Steve Ballmer, chief executive =
officer of=20
Microsoft. =E2=80=9CWe believe our combination will deliver superior =
value to our=20
respective shareholders and better choice and innovation to our =
customers and=20
industry partners.=E2=80=9D </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">=E2=80=9COur lives, our =
businesses, and even our=20
society have been progressively transformed by the Web, and Yahoo! has =
played a=20
pioneering role by building compelling, high-scale services and =
infrastructure,=E2=80=9D=20
said Ray Ozzie, chief software architect at Microsoft. =E2=80=9CThe =
combination of these=20
two great teams would enable us to jointly deliver a broad range of new=20
experiences to our customers that neither of us would have achieved on =
our=20
own.=E2=80=9D</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">The online advertising market is =
growing at=20
a very fast pace, from over $40 billion in 2007 to nearly $80 billion by =
2010.=20
The resulting benefits of scale along with the associated capital costs =
for=20
advertising platform providers make this a time of industry =
consolidation and=20
convergence. Today this market is increasingly dominated by one player.=20
Together, Microsoft and Yahoo! can offer a competitive choice while =
better=20
fulfilling the needs of customers and partners.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">=E2=80=9CThe combined assets and =
strong services=20
focus of these two companies will enable us to achieve scale economics =
while=20
reaching R&amp;D critical mass to deliver innovation =
breakthroughs,=E2=80=9D said Kevin=20
Johnson, president of the Platforms &amp; Services Division of =
Microsoft. =E2=80=9CThe=20
industry will be well served by having more than one strong player, =
offering=20
more value and real choice to advertisers, publishers and =
consumers.=E2=80=9D=20
</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">The combination will create a =
more=20
efficient company with synergies in four areas: scale economics driven =
by=20
audience critical mass and increased value for advertisers; combined =
engineering=20
talent to accelerate innovation; operational efficiencies through =
elimination of=20
redundant cost; and the ability to innovate in emerging user experiences =
such as=20
video and mobile. Microsoft believes these four areas will generate at =
least $1=20
billion in annual synergy for the combined entity. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft has developed a plan =
and process=20
that will include the employees of both companies to focus on the =
integration of=20
the combined business. Microsoft intends to offer significant retention =
packages=20
to Yahoo! engineers, key leaders and employees across all=20
disciplines.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft believes this proposed=20
combination would receive all necessary regulatory approvals and expects =
that=20
the proposed transaction would be completed in the second half of =
calendar year=20
2008.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft is also committed to =
working=20
closely with Yahoo! management and its Board of Directors as they, along =
with=20
Yahoo! shareholders, evaluate this compelling proposal. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Below is the text of the letter =
that=20
Microsoft sent to Yahoo!=E2=80=99s Board of Directors:</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif"></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">January 31, 2008</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif"></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif"></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Board of Directors<BR>Yahoo! =
Inc.<BR>701=20
First Avenue<BR>Sunnyvale, CA 94089<BR>Attention: Roy Bostock,=20
Chairman<BR>Attention: Jerry Yang, Chief Executive Officer</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif"></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Dear Members of the =
Board:</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">I am writing on behalf of the =
Board of=20
Directors of Microsoft to make a proposal for a business combination of=20
Microsoft and Yahoo!. Under our proposal, Microsoft would acquire all of =
the=20
outstanding shares of Yahoo! common stock for per share consideration of =
$31=20
based on Microsoft=E2=80=99s closing share price on January 31, 2008, =
payable in the=20
form of $31 in cash or 0.9509 of a share of Microsoft common stock. =
Microsoft=20
would provide each Yahoo! shareholder with the ability to choose whether =
to=20
receive the consideration in cash or Microsoft common stock, subject to=20
pro-ration so that in the aggregate one-half of the Yahoo! common shares =
will be=20
exchanged for shares of Microsoft common stock and one-half of the =
Yahoo! common=20
shares will be converted into the right to receive cash. Our proposal is =
not=20
subject to any financing condition. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Our proposal represents a 62% =
premium above=20
the closing price of Yahoo! common stock of $19.18 on January 31, 2008. =
The=20
implied premium for the operating assets of the company clearly is =
considerably=20
greater when adjusted for the minority, non-controlled assets and cash. =
By=20
whatever financial measure you use - EBITDA, free cash flow, operating =
cash=20
flow, net income, or analyst target prices - this proposal represents a=20
compelling value realization event for your shareholders. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">We believe that Microsoft common =
stock=20
represents a very attractive investment opportunity for Yahoo!=E2=80=99s =
shareholders.=20
Microsoft has generated revenue growth of 15%, earnings growth of 26%, =
and a=20
return on equity of 35% on average for the last three years. =
Microsoft=E2=80=99s share=20
price has generated shareholder returns of 8% during the last one year =
period=20
and 28% during the last three year period, significantly outperforming =
the=20
S&amp;P 500. It is our view that Microsoft has significant potential =
upside=20
given the continued solid growth in our core businesses, the recent =
launch of=20
Windows Vista, and other strategic initiatives. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft=E2=80=99s consistent =
belief has been that=20
the combination of Microsoft and Yahoo! clearly represents the best way =
to=20
deliver maximum value to our respective shareholders, as well as create =
a more=20
efficient and competitive company that would provide greater value and =
service=20
to our customers. In late 2006 and early 2007, we jointly explored a =
broad range=20
of ways in which our two companies might work together. These =
discussions were=20
based on a vision that the online businesses of Microsoft and Yahoo! =
should be=20
aligned in some way to create a more effective competitor in the online=20
marketplace. We discussed a number of alternatives ranging from =
commercial=20
partnerships to a merger proposal, which you rejected. While a =
commercial=20
partnership may have made sense at one time, Microsoft believes that the =
only=20
alternative now is the combination of Microsoft and Yahoo! that we are=20
proposing. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">In February 2007, I received a =
letter from=20
your Chairman indicating the view of the Yahoo! Board that =E2=80=9Cnow =
is not the right=20
time from the perspective of our shareholders to enter into discussions=20
regarding an acquisition transaction.=E2=80=9D According to that letter, =
the principal=20
reason for this view was the Yahoo! Board=E2=80=99s confidence in the =
=E2=80=9Cpotential upside=E2=80=9D=20
if management successfully executed on a reformulated strategy based on =
certain=20
operational initiatives, such as Project Panama, and a significant=20
organizational realignment. A year has gone by, and the competitive =
situation=20
has not improved. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">While online advertising growth =
continues,=20
there are significant benefits of scale in advertising platform =
economics, in=20
capital costs for search index build-out, and in research and =
development,=20
making this a time of industry consolidation and convergence. Today, the =
market=20
is increasingly dominated by one player who is consolidating its =
dominance=20
through acquisition. Together, Microsoft and Yahoo! can offer a credible =

alternative for consumers, advertisers, and publishers. Synergies of =
this=20
combination fall into four areas:</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Scale economics: This combination =
enables=20
synergies related to scale economics of the advertising platform where =
today=20
there is only one competitor at scale. This includes synergies across =
both=20
search and non-search related advertising that will strengthen the value =

proposition to both advertisers and publishers. Additionally, the =
combination=20
allows us to consolidate capital spending.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Expanded R&amp;D capacity: The =
combined=20
talent of our engineering resources can be focused on R&amp;D priorities =
such as=20
a single search index and single advertising platform. Together we can =
unleash=20
new levels of innovation, delivering enhanced user experiences, =
breakthroughs in=20
search, and new advertising platform capabilities. Many of these =
breakthroughs=20
are a function of an engineering scale that today neither of our =
companies has=20
on its own.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Operational efficiencies: =
Eliminating=20
redundant infrastructure and duplicative operating costs will improve =
the=20
financial performance of the combined entity. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Emerging user experiences: Our =
combined=20
ability to focus engineering resources that drive innovation in emerging =

scenarios such as video, mobile services, online commerce, social media, =
and=20
social platforms is greatly enhanced. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">We would value the opportunity to =
further=20
discuss with you how to optimize the integration of our respective =
businesses to=20
create a leading global technology company with exceptional display and =
search=20
advertising capabilities. You should also be aware that we intend to =
offer=20
significant retention packages to your engineers, key leaders and =
employees=20
across all disciplines.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">We have dedicated considerable =
time and=20
resources to an analysis of a potential transaction and are confident =
that the=20
combination will receive all necessary regulatory approvals. We look =
forward to=20
discussing this with you, and both our internal legal team and outside =
counsel=20
are available to meet with your counsel at their earliest convenience.=20
</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Our proposal is subject to the =
negotiation=20
of a definitive merger agreement and our having the opportunity to =
conduct=20
certain limited and confirmatory due diligence. In addition, because a =
portion=20
of the aggregate merger consideration would consist of Microsoft common =
stock,=20
we would provide Yahoo! the opportunity to conduct appropriate limited =
due=20
diligence with respect to Microsoft. We are prepared to deliver a draft =
merger=20
agreement to you and begin discussions immediately. </FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">In light of the significance of =
this=20
proposal to your shareholders and ours, as well as the potential for =
selective=20
disclosures, our intention is to publicly release the text of this =
letter=20
tomorrow morning.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Due to the importance of these =
discussions=20
and the value represented by our proposal, we expect the Yahoo! Board to =
engage=20
in a full review of our proposal. My leadership team and I would be =
happy to=20
make ourselves available to meet with you and your Board at your =
earliest=20
convenience. Depending on the nature of your response, Microsoft =
reserves the=20
right to pursue all necessary steps to ensure that Yahoo!=E2=80=99s =
shareholders are=20
provided with the opportunity to realize the value inherent in our=20
proposal.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">We believe this proposal =
represents a=20
unique opportunity to create significant value for Yahoo!=E2=80=99s =
shareholders and=20
employees, and the combined company will be better positioned to provide =
an=20
enhanced value proposition to users and advertisers. We hope that you =
and your=20
Board share our enthusiasm, and we look forward to a prompt and =
favorable reply.=20
</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Sincerely yours,</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">/s/ Steven A. Ballmer</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Steven A. Ballmer</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Chief Executive =
Officer</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft Corporation</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif"></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft will host an =
analyst/investor=20
conference call at&nbsp;8:30 a.m. Eastern Time/5:30 a.m. Pacific Time to =
discuss=20
today=E2=80=99s announcement. If you want to participate, you may do so =
by dialing=20
(866)&nbsp;610-1072 or (706) 634-9230 (toll/international); the =
conference ID=20
number is 33470390. Please dial in at least 20 minutes in advance of the =
call.=20
Accompanying slides and the conference call Webcast will be available at =

</FONT><A href=3D"http://www.microsoft.com/presspass"><FONT=20
face=3D"Microsoft Sans =
Serif">http://www.microsoft.com/presspass</FONT></A><FONT=20
face=3D"Microsoft Sans Serif">. Playback of the conference call and the =
webcast=20
will be available for replay through the close of business on Feb. 5, =
2008. The=20
replay can be accessed by dialing (800) 642-1687 or (706) 645-9291=20
(toll/international); the conference ID number is 33470390.</FONT></P>
<P><B><FONT face=3D"Microsoft Sans Serif">About Microsoft</FONT></B></P>
<P><FONT face=3D"Microsoft Sans Serif">Founded in 1975, Microsoft =
(NASDAQ: MSFT)=20
is the worldwide leader in software, services and solutions that help =
people and=20
businesses realize their full potential.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif"></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">This communication does not =
constitute an=20
offer to sell or the solicitation of an offer to buy any securities or a =

solicitation of any vote or approval. In connection with the proposed=20
transaction, Microsoft Corp. plans to file with the SEC a registration =
statement=20
on Form S-4 containing a proxy statement/prospectus and other documents=20
regarding the proposed transaction. The definitive proxy =
statement/prospectus=20
will be mailed to shareholders of Yahoo! Inc. <B>INVESTORS AND SECURITY =
HOLDERS=20
OF YAHOO! INC. ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND =
OTHER=20
DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY WHEN THEY =
BECOME=20
AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE =
PROPOSED=20
TRANSACTION. </B></FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Investors and security holders =
will be able=20
to obtain free copies of the registration statement and the proxy=20
statement/prospectus (when available) and other documents filed with the =
SEC by=20
Microsoft Corp. through the Web site maintained by the SEC at=20
http://www.sec.gov. Free copies of the registration statement and the =
proxy=20
statement/prospectus (when available) and other documents filed with the =
SEC can=20
also be obtained by directing a request to Investor Relations =
Department,=20
Microsoft Corp., One Microsoft Way, Redmond, Wash. 98052-6399. =
</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Microsoft Corp. and its directors =
and=20
executive officers and other persons may be deemed to be participants in =
the=20
solicitation of proxies in respect of the proposed transaction. =
Information=20
regarding Microsoft Corp.=E2=80=99s directors and executive officers is =
available in its=20
Annual Report on Form 10-K for the year ended June 30, 2007, which was =
filed=20
with the SEC on Aug. 8, 2007, and its proxy statement for its 2007 =
annual=20
meeting of shareholders, which was filed with the SEC on Sept. 29, 2007. =
Other=20
information regarding the participants in the proxy solicitation and a=20
description of their direct and indirect interests, by security holdings =
or=20
otherwise, will be contained in the proxy statement/prospectus and other =

relevant materials to be filed with the SEC when they become=20
available.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">Statements in this release that =
are=20
=E2=80=9Cforward-looking statements=E2=80=9D are based on current =
expectations and assumptions=20
that are subject to risks and uncertainties. Actual results could differ =

materially because of factors such as Microsoft Corp.=E2=80=99s ability =
to achieve the=20
synergies and value creation contemplated by the proposed transaction, =
Microsoft=20
Corp.=E2=80=99s ability to promptly and effectively integrate the =
businesses of Yahoo!=20
Inc. and Microsoft Corp., the timing to consummate the proposed =
transaction and=20
any necessary actions to obtain required regulatory approvals, and the =
diversion=20
of management time on transaction-related issues. For further =
information=20
regarding risks and uncertainties associated with Microsoft =
Corp.=E2=80=99s business,=20
please refer to the =E2=80=9CManagement=E2=80=99s Discussion and =
Analysis of Financial Condition=20
and Results of Operations=E2=80=9D and =E2=80=9CRisk Factors=E2=80=9D =
sections of Microsoft Corp.=E2=80=99s SEC=20
filings, including, but not limited to, its annual report on Form 10-K =
and=20
quarterly reports on Form 10-Q, copies of which may be obtained by =
contacting=20
Microsoft Corp.=E2=80=99s Investor Relations department at =
(800)&nbsp;285-7772 or at=20
Microsoft Corp.=E2=80=99s Web site at </FONT><A=20
href=3D"http://www.microsoft.com/msft"><FONT=20
face=3D"Microsoft Sans =
Serif">http://www.microsoft.com/msft</FONT></A><FONT=20
face=3D"Microsoft Sans Serif">.</FONT></P>
<P><FONT face=3D"Microsoft Sans Serif">All information in this =
communication is as=20
of Feb. 1, 2008. Microsoft Corp. undertakes no duty to update any=20
forward-looking statement to conform the statement to actual results or =
changes=20
in the company=E2=80=99s expectations.</FONT></P>
<P><B><FONT face=3D"Microsoft Sans Serif">For more information, press=20
only:</FONT></B></P>
<P><FONT face=3D"Microsoft Sans Serif">Rapid Response Team, Waggener =
Edstrom=20
Worldwide, (503) 443-7070, </FONT><A =
href=3D"mailto:rrt@waggeneredstrom.com"><FONT=20
face=3D"Microsoft Sans Serif">rrt@waggeneredstrom.com </FONT></A></P>
<P><FONT face=3D"Microsoft Sans Serif"><I>Note to editors:</I> If you =
are=20
interested in viewing additional information on Microsoft, please visit =
the=20
Microsoft Web page at </FONT><A =
href=3D"http://www.microsoft.com/presspass"><FONT=20
face=3D"Microsoft Sans =
Serif">http://www.microsoft.com/presspass</FONT></A><FONT=20
face=3D"Microsoft Sans Serif"> on Microsoft=E2=80=99s corporate =
information pages. Web=20
links, telephone numbers and titles were correct at time of publication, =
but may=20
since have changed. For additional assistance, journalists and analysts =
may=20
contact Microsoft=E2=80=99s Rapid Response Team or other appropriate =
contacts listed at=20
</FONT><A =
href=3D"http://www.microsoft.com/presspass/contactpr.mspx"><FONT=20
face=3D"Microsoft Sans =
Serif">http://www.microsoft.com/presspass/contactpr.mspx</FONT></A><FONT =

face=3D"Microsoft Sans Serif">.</FONT></P></BODY></HTML>

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