Microsoft plans to buy internet search engine Yahoo! for £22.4billion to go head-to-head with rival Google.
The software giant founded by Bill Gates said the deal would allow it to challenge a market "increasingly dominated by one player".
The offer follows predictions online advertising will double to £40.2billion by 2010.
Microsoft said it hopes to offer a "credible alternative" to Google through the tie-up.
The surprise offer comes a year after the firms discussed a partnership. Yahoo! pulled out as it believed an overhaul of its business would make it more successful.
It recently reported a 23 per cent fall in profits for October to December.
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