-By Brian Morrissey

NEW YORK Microsoft said it has made an unsolicited $44.6 billion bid for Yahoo! in an attempt to further consolidate the Web advertising industry and create a credible competitor to Google.

Microsoft went public with the offer, a mix of stock and cash that is 61 percent higher than Yahoo!'s current stock price, after Yahoo! executives rebuffed entreaties to discuss uniting, according to Microsoft. The deal is half cash, half stock.

"Today the market is increasingly dominated by one player who is consolidating its dominance through acquisition," Microsoft CEO Steve Ballmer wrote in a letter to Yahoo!'s board of directors. "Together, Microsoft and Yahoo! can offer a credible alternative for consumers, advertisers and publishers."

Yahoo! said it would "evaluate this proposal carefully and promptly in the context of Yahoo!'s strategic plans."

The offer comes nearly a year after rumors first surfaced of Microsoft making a bid for Yahoo!. Both companies have struggled to keep up in the Internet's most critical ad area, search, as Google has continued to grow its market share.

Combined, Yahoo! and Microsoft would have 32 percent of the U.S. search market, per comScore. Google has 59 percent. According to a recent report by Efficient Frontier, Google took in 97 percent of the growth in search advertising in the fourth quarter.

According to Ballmer's letter, Yahoo! rejected Microsoft's acquisition overtures with the rationale that its efforts to turn around the company would yield greater value. Ballmer questioned whether Yahoo! has made progress on this front, noting that its new search ad system hasn't paid off.

In laying out its rationale for the deal, Microsoft emphasized the overwhelming need for scale to compete in the digital ad market. Google has seen success in using its enormous computer infrastructure, combined with its huge base of users, publishers and advertisers creating a "virtuous cycle" of continued growth.

"The 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," he said. "The industry will be well-served by having more than one strong player, offering more value and real choice to advertisers, publishers and consumers."

On top of that, Microsoft said the combination would result in $1 billion in cost savings.

It would also bring a slew of overlapping assets. Yahoo! and MSN both have high-reach portals. The companies also have different ad network, ad exchange and search ad systems that would need to be integrated. Microsoft is also still integrating its $6 billion acquisition of aQuantive, which brought it the Atlas ad-serving technology, Avenue A/Razorfish agency and DrivePM ad network.

Sarah Fay, CEO of Carat, said the deal is not likely to affect advertisers either positively or negatively. "I don't know if you can say it's good or bad for the industry," she said, noting it is unlikely to change user behavior much. "We'll take advantage of the opportunities it creates."

Perhaps the biggest risk to the merger, she said, is the daunting task of integrating the two companies' technology platforms, sales forces and properties. Moreover, Yahoo! and Microsoft have developed far different cultures, with Yahoo! cultivating a loose Silicon Valley mindset while Microsoft remains tied to its software roots.

"It's almost like Republicans and Democrats," she said.

If the deal goes through, it would likely close in the second half of the year, per Microsoft.