Microsoft Corporation has launched a $ 44.6 billion bid to acquire leading web company Yahoo! in one of the biggest internet takeovers till date.

The offer, at US $31 a share in cash and stock, represents a 62% premium to Yahoo's closing price on January 31.

Microsoft further said that the combined entity would create a more competitive firm, providing superior value to shareholders, better choice and innovation for customers and partners.

Steve Ballmer on behalf of the Microsoft board of directors sent out a letter to Yahoo yesterday.

The move comes as Yahoo is losing ground rapidly in the Internet space to Google, the search leader which has been able to cash in on the growing market for online advertising. It is noticeable that Yahoo's shares have lost about 40% of their value over the past three months.

While, Yahoo called the proposal “unsolicited” and issued a statement noting its Board of Directors to evaluate the offer "carefully and promptly in the context of Yahoo!'s strategic plans and pursue the best course of action to maximize long-term value for shareholders.