Verizon buys Yahoo, marking end of an era
Verizon is buying Yahoo for US$4.83 billion, marking the end of an era for a company that once defined the internet.
It is the second time in as many years that Verizon, extending its digital reach, has snapped up the remnants of a fallen internet star. The nation's largest wireless carrier paid US$4.4 billion for AOL last year.
Yahoo will be rolled into Verizon's AOL operations and CEO Marissa Mayer may be reunited with AOL CEO Tim Armstrong. Both were executives at Google for years and Armstrong tried unsuccessfully to convince Mayer to combine the two companies when they remained independent.
"We have enormous respect for what Yahoo has accomplished: this transaction is about unleashing Yahoo's full potential," Armstrong said in a printed statement.
Most analysts expect the deal to end the four-year reign of Yahoo's Mayer, who flopped in her attempts to turn around Yahoo.
Mayer, though, told employees in a Monday email that she intends to stay without specifying for how long. "I love Yahoo, and I believe in all of you. It's important to me to see Yahoo into its next chapter," she wrote.
Yahoo Inc, based in Sunnyvale, California, is parting with its email service and still-popular websites devoted to news, finance and sports in addition to its advertising tools under pressure from shareholders fed up with a steep downturn in the company's revenue during the past eight years.
The slump deepened even as advertisers pour torrents of cash into what is now a US$160 billion market for digital advertising, according to research firm eMarketer.
Most of that money, however, has been flowing toward Google and Facebook, two companies that eclipsed Yahoo during its slide from an online sensation, once valued at US$130 billion, to a dysfunctional also ran.
After the sale is completed early next year, Yahoo will become a holding company for its two stakes in China's e-commerce leader, Alibaba Group, and Yahoo Japan. Those investments, made more than a decade ago, are worth more than US$40 billion before taxes, making them by far the most valuable pieces of Yahoo. The holding company will drop the Yahoo name and adopt a new identify after Verizon takes control of the operating business.
Yahoo also still has a patent portfolio that it intends to sell, and about US$7.7 billion in cash. Verizon is buying Yahoo's real estate, along with the online operations.
By bringing AOL and Yahoo together, Verizon is betting that it will be able to draw upon the best of both services to create more compelling apps and attract more advertisers.
If Verizon fully owned Yahoo right now, it would generate about US$3.6 billion in US ad revenue this year to eclipse Microsoft for third place in the market, based on eMarketer's estimates. It would still be a very distant third in ad revenue, compared with Google's projected US$27 billion, and Facebook's projected US$10 billion.
While Verizon prizes Yahoo's ad services, it covets the hordes that still regularly visit to pick up their email, check the weather and catch up on current events, celebrity gossip and the stock market. The company is hoping to have a mobile audience of two billion people by 2020, with a goal of US$20 billion in mobile revenue by that time.
Yahoo says it has more than one billion users, including 225 million on its email service. The email users are an especially valuable part of Yahoo's audience because they tend to visit on a regular basis and log in to make it easier to track their interests for advertising purposes.
Verizon won a five-month auction for Yahoo over a list of other bidders that included rival AT&T Inc, a group led by Quicken Loans founders Dan Gilbert and private equity firms that specialise in buying distressed companies and trying to rehabilitate them.
The deal, expected to close within the first three months of next year, still needs approval from Yahoo shareholders.