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Yahoo has agreed to sell its core internet business to telecom giant Verizon for $4.83 billion after a bidding process that took several months.
The transaction will “create a new rival in mobile media technology reaching over 1 billion users with a roster of the world’s most beloved brands,” including 600 million monthly active mobile users, the companies said Monday upon unveiling the deal.
The agreement makes official a deal that has been expected for the last week, following the due date for the final round of bids from interested parties said to include AT&T and private equity firm TPG. Verizon, which has a market cap of more than $228 billion, was long considered the frontrunner in the bidding war, with executives speaking out frequently about their interest in Yahoo’s assets.
Yahoo will continue to own its stakes in Alibaba and Yahoo Japan and certain minority investments at the close of the deal, as well as its non-core patents, which are called the “Excalibur” portfolio. “These assets will continue to be held by Yahoo, which will change its name at closing and become a registered, publicly traded investment company,” the companies said. “Yahoo will provide additional information about the investment company at a future date.”
If the deal is terminated, Yahoo may be required to pay Verizon a break-up fee of $144.77 million in certain circumstances, “including if Yahoo terminates the purchase agreement to enter into a superior proposal satisfying certain requirements, Verizon terminates the purchase agreement because the board of directors of Yahoo has made an adverse recommendation change,” among others, the companies said in a regulatory filing.
Yahoo had a market capitalization of $125 billion-plus during the internet boom, but then saw its value drop. The company has in recent years continued to struggle to compete with online powerhouses Google and Facebook.
The deal adds Yahoo’s media properties — including Yahoo Finance, Yahoo Sports, Tumblr and video ad platform BrightRoll — to Verizon’s growing advertising tech and media business, which was bolstered last year by the purchase of AOL for $4.4 billion. The move also unites longtime business rivals Yahoo and AOL, which have considered merging in the past. AOL CEO Tim Armstrong, who has been building Verizon’s online media assets, was a key player in the telecom firm’s Yahoo bidding process. Yahoo will be integrated with AOL under Marni Walden, executive vp and president of the product innovation and new businesses organization at Verizon.
“Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers,” said Verizon chairman and CEO Lowell McAdam. “The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising.”
Said Mayer: “Yahoo is a company that has changed the world, and will continue to do so through this combination with Verizon and AOL. The sale of our operating business, which effectively separates our Asian asset equity stakes, is an important step in our plan to unlock shareholder value for Yahoo. This transaction also sets up a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising and social.”
She added: “Yahoo and AOL popularized the internet, email, search and real-time media. It’s poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile.”
Said Armstrong: “Our mission at AOL is to build brands people love, and we will continue to invest in and grow them. Yahoo has been a long-time investor in premium content and created some of the most beloved consumer brands in key categories like sports, news and finance. We have enormous respect for what Yahoo has accomplished: This transaction is about unleashing Yahoo’s full potential, building upon our collective synergies, and strengthening and accelerating that growth. Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers.”
Verizon said the deal will create “one of the largest portfolios of owned and partnered global brands with extensive distribution capabilities.” Combined, AOL and Yahoo will have more than 25 brands in its portfolio for continued investment and growth. Yahoo’s key assets highlighted by Verizon “include market-leading premium content brands in major categories including finance, news and sports, as well as one of the most popular email services globally with approximately 225 million monthly active users. Additional technology assets in the advertising space include Brightroll, a programmatic demand-side platform; Flurry, an independent mobile apps analytics service; and Gemini, a native and search advertising solution.”
The deal is subject to approval by Yahoo’s shareholders and regulatory approvals, and it is expected to close in the first quarter of 2017.
Pivotal Research Group analyst Brian Wieser said there are “a lot of synergies between Verizon and Yahoo,” so they “are better off together than apart.” Importantly, he said the combined company would be “a stronger number 3 player in the industry, better able to compete for shares of marketers’ ‘wallets.’ They’d still be a long way from number 1 and number 2, Google and Facebook, but closer.”
Another Wall Street observer summarized the hopes and feelings among most Yahoo investors in the weeks before the deal announcement this way: “Just get it over with already!”
Verizon was one of several bidders who entered into the lengthy sale process earlier this year to acquire a large piece of the beleaguered tech company. By acquiring Yahoo’s core internet business, Verizon is hoping to breathe new life into a company that still has a sizeable audience.
Yahoo CEO Marissa Mayer has faced mounting pressure since late last year to sell the company’s core business as a tax-free way of separating Yahoo from its large stake in Alibaba. The company confirmed in February that it would begin to explore a sale, setting up an independent committee to evaluate its options. The three-round process kicked off this spring and reports surfaced in mid-May that bids for all or parts of the pioneering internet company had come in lower than expected. While some figured that Yahoo could get as much as $10 billion for its core business — which excludes its stake in Alibaba and Yahoo Japan — offers from about a dozen suitors were as low as $2 billion, according to observers.
Final bids were due July 18, the same day the company reported unimpressive second-quarter results, in what will now be its last earnings report as an independent public company. Among those believed to have submitted finals bids were AT&T and TPG. There also were reports of a final bid from Dan Gilbert, the founder of Quicken Loans and owner of the NBA’s Cleveland Cavaliers, supported by Warren Buffett’s Berkshire Hathaway.
The sale brings an end to Mayer’s four-year effort to turn around Yahoo’s business. Her 2012 hiring was seen as an opportunity to revive the search and advertising company. But despite pumping significant resources into Yahoo and hiring buzzy names like Katie Couric for its media business, Mayer has struggled to return Yahoo to its previous position.
Yahoo’s second-quarter earnings report was largely overshadowed by investors anxious for news on the state of its sale. The company reported adjusted earnings of 9 cents per share, down from 16 cents per share during the second quarter of last year, on revenue of $1.2 billion, which was boosted by the sale of some real estate.
Yahoo stock on Friday had closed at $39.38, near its 52-week high of $39.78.
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