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Verizon to buy Yahoo’s core business for $4.83 billion

Written by Jaymin Shah

Verizon, seeking to bolster its meager digital content for consumers, announced on Monday that it was acquiring Yahoo’s core internet business for $4.83 billion in cash.

“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,” Lowell C. McAdam, Verizon’s chairman and chief executive, said in a statement.

The deal, which was reached over the weekend, unites two titans of the early internet, AOL and Yahoo, which were surpassed by Google and Facebook long ago and have struggled to compete on their own.

Verizon bought AOL for $4.4 billion last year. Now it will add Yahoo’s consumer services — search, news, finance, sports, video, email and the Tumblr social network — to its portfolio. The telecommunications giant hopes the combination will create a stronger No. 3 challenger to Google and Facebook for digital advertising revenue.

The purchase does carry risks for Verizon, which is well known for its wireless phone and internet services, but has little experience in the cutthroat business of digital content. Analysts say that its AOL purchase has yet to prove its worth, although Tim Armstrong, AOL’s chief executive, is well regarded in the industry.

Yahoo’s leadership team, led by its chief executive, Marissa Mayer, spent the last four long years trying to create a viable strategy for the company without success.

Why Yahoo Sold Itself

Yahoo, the Internet portal giant, has been struggling for a decade to find a winning strategy against competitors in search, social media and video. Now it is poised to give up, selling itself to Verizon for a small fraction of what it was worth at its height in 2000.

Ms. Mayer defended her tenure in an email to employees.

“We set out to transform this company — and we’ve made incredible progress. We counteracted many of the tectonic shifts of declining legacy businesses, and built a Yahoo that is unequivocally stronger, nimbler and more modern,” she wrote.

Ms. Mayer added that she intended to “see Yahoo into its next chapter,” although it was unclear whether she would work at Verizon after the deal closes in early 2017. If she is terminated, she is due a severance package of about $57 million.

The sale of Yahoo’s business ends the company’s 22-year run as an independent entity. Founded in a trailer in 1994 by two Stanford graduate students, it was the front door to the web for a generation of internet usersbut failed to keep up with Google in search technology and then missed the social media and mobile revolutions.

On top of the purchase price, Verizon will pay $1.1 billion to cash out Yahoo employees’ restricted stock, Yahoo said.

After the close of the deal, Yahoo shareholders will still own shares in what is left of the company, which will essentially be an investment fund with two holdings: a 15 percent stake, worth about $32 billion based on its recent share price, in the Chinese internet company Alibaba; and a 35.5 percent stake, worth about $8.7 billion, in Yahoo Japan.

The sale also does not include Yahoo’s cash and Yahoo’s noncore patents, which it is trying to sell separately.

Yahoo was under pressure from shareholders to find a way to unlock the value of its Asian investments, and the sale of its core operations to Verizon was the first step.

“For investors, this came to the expected conclusion: Verizon was the front-runner very early on,” said Robert Peck, an analyst with SunTrust Robinson Humphrey. “The real question for investors now is what’s next? Will Yahoo have an efficient liquidation of the Asian securities?”

About the author

Jaymin Shah

Jaymin Shah is a tech entrepreneur. He is the Founder & CEO of TechOptimals. He has made a name for himself in the tech media world as a writer relentlessly covering Technology, in addition to a broad range of startups. Contact Jaymin at jaymin@techoptimals.com

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