Verizon Nearing Yahoo Deal (Report)

marissa mayer - H 2016
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marissa mayer - H 2016

Bids for the internet company, led by CEO Marissa Mayer, were due on Monday, and the telecom company has long been seen as a frontrunner.

Telecom giant Verizon is nearing a deal to acquire the core business of internet company Yahoo, led by CEO Marissa Mayer, according to Bloomberg News on Friday.

Yahoo decided to explore its strategic options earlier this year and has been looking to sell its core internet business or more. Final bids were due on Monday.

Verizon is discussing a price tag of close to $5 billion for Yahoo’s core internet business after emerging as the lead suitor in the final round of bidding, Bloomberg reported citing a source, but it said there was no guarantee a deal would be finalized. While some observers originally figured that Yahoo could fetch as much as $10 billion for its core business — which excludes its stake in Alibaba and Yahoo Japan — bids so far came in below that, according to observers.

Among those believed to also have submitted final bids for Yahoo were telecom giant AT&T and Dan Gilbert, founder of Quicken Loans and owner of the NBA's Cleveland Cavaliers, supported by Warren Buffett's Berkshire Hathaway. Private equity firm TPG also has been among the suitors that were in the final round.

Verizon, which is set to report its second-quarter earnings on Tuesday, on Friday declined to comment on the report. Yahoo declined to comment.

Yahoo didn't say much about the process on July 18 when it reported its second-quarter earnings after the market close. “We are deep into the process of evaluating proposals and alternatives and will update our shareholders as soon as it’s prudent,” Mayer said on an earnings call.

Verizon has been considered the frontrunner in the Yahoo sale given its focus on building its digital business, with executives openly expressing their interest in Yahoo's assets. The acquisition of Yahoo would build on Verizon's growing advertising technology and media business, bolstered last year with the purchase of AOL for $4.4 billion. A deal between Verizon and Yahoo would also unite two Yahoo and AOL, longtime rivals because of the similarity in their businesses. AOL CEO Tim Armstrong has been key to Verizon's negotiations for Yahoo.  

Verizon CFO Fran Shammo spoke at an investor conference in London recently, saying, "Obviously we have gone on a strategic roadmap here around mobile-first activity.” He highlighted how Verizon bought AOL for $4.4 billion for its advertising technology, emphasizing that “AOL has brought a lot of viewership to the platform.” He added: “Viewership matters, because viewership drives advertising dollars, which drives the top-line revenue. When you think about viewership, Yahoo has viewership. Okay, so that’s all I’m going to say about that.”

Wall Street, meanwhile, this week commented on how little investors paid attention to the company's latest financials as the auction remains the key focus. Pivotal Research Group analyst Brian Wieser highlighted that the earnings call featured "relatively little commentary on the transaction news that so many are waiting on."

He added: "Little else warrants much focus for the present time other than to know that the business is still struggling, and signs of a 'turnaround' are still difficult to see. At an operational level, Yahoo’s situation has gone from bad to worse in recent quarters, with poor choices at both board and senior management levels compounding bad luck. Virtually all of the stock’s value remains dependent on the value of Alibaba and Yahoo Japan."

Wieser's target price on Yahoo remains at $41. "With the stock’s rise in value recently, it now falls only 8 percent under our price target, leading us to alter our recommendation from 'buy' to 'hold,'" he said.

Cowen analyst John Blackledge wrote in a report: "In our view, second-quarter results are relatively unimportant given the sale process underway and the stock was mostly unchanged after hours." He reiterated his "market perform" rating and $32 target price.