25 Jul 2016

End of an Era: Verizon buys Yahoo for $4.8 billion

It’s all but over for Yahoo Inc.

The Sunnyvale, Calif., Internet company, once a key guide to the World Wide Web, announced Monday that telecommunications giant Verizon Communications Inc. will buy its core assets for $4.83 billion.

The sale comes after a five-month bidding process that saw interest from media groups such as the Daily Mail and IAC, Internet companies such as Google and Microsoft and private equity firms TPG and Bain Capital.

Verizon, the nation’s largest wireless carrier, was the clear front-runner, having snapped up the remains of AOL last year for $4.4 billion to expand its digital portfolio.

The deal — under which Yahoo will part with its email service; its websites dedicated to news, finance and sports; advertising tools; real estate; and some patents — is expected to close in the first quarter of 2017. The company will continue to operate independently until then.

The sale does not include the company’s cash, its shares in Alibaba Group Holdings, its shares in Yahoo Japan or its non-core patents (called the Excalibur portfolio). These assets are to remain with Yahoo, and the company will change its name and be a registered, publicly traded investment company once the deal is closed.

Yahoo’s websites are to be integrated with AOL, but AOL spokeswoman Caroline Campbell confirmed that “Yahoo brands [such as Yahoo Finance and Yahoo Sports] will not go away.” Instead, they will exist alongside AOL’s standalone brands such as the Huffington Post, TechCrunch and Engadget.

The final sale is a far cry from the $45 billion Microsoft offered in 2008 — an offer Yahoo famously rebuked. But Yahoo’s brand has taken a beating in recent years, with some analysts saying that the company should be happy to fetch anywhere near $5 billion.

Yahoo’s former interim chief executive, Ross Levinsohn, was even less optimistic, telling CNBC last week that he expected the company to trade in the $3.5-billion to $4-billion range.
“The state [of Yahoo] is troubled, clearly,” Levinsohn said. “We can look back over the past four years and say the strategy did not pay off.”
The deal had been expected to end the four-year tenure of Yahoo Chief Executive Marissa Mayer, but she said early Monday that she expects to stay with the company.
"I love Yahoo, and I believe in all of you," Mayer said in a statement. "It’s important to me to see Yahoo into its next chapter."
Yahoo’s troubles began well before Mayer took the reins.

The company churned through five CEOs in six years, unable to decide if it was a media company or technology company — indecision that resulted in it doing neither particularly well. It largely missed the mobile revolution, catching only the tail end once Mayer joined the firm.

Although Mayer helped create revenue for the company from its mobile products, her own leadership was marred with foibles. Her acquisitions — including the $1.1 billion paid for Tumblr — have been a bust. Her turnaround strategies (the company is on its second turnaround in four years) haven’t improved the company’s revenue decline. And her big spending on media personalities such as Katie Couric and David Pogue haven’t drawn the eyeballs of viewers as hoped.

This year, activist investor Starboard Value LP grew so impatient with Mayer that it wrote to shareholders, calling for an overhaul of the company’s board of directors and pushing for a sale of the core business.
“We have been extremely disappointed with Yahoo’s dismal financial performance, poor management execution, egregious compensation and hiring practices and general lack of accountability and oversight by the board,” managing member Jeffrey Smith said.
Analysts have said Yahoo would complement Verizon as the mobile and broadband company continues to bolster its media efforts.

Yahoo properties such as Yahoo Finance and its online lifestyle magazines could be a valuable addition to the telecom company's portfolio, expanding its audience and reach and opening additional revenue opportunities as its pool of new potential mobile and broadband customers dwindles.

Like AOL, Yahoo boasts a sizable and sophisticated digital advertising business, which Verizon could use to develop new revenue streams.



Credit: Tracey Lien

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