Verizon is doubling down on content. The nation’s largest telecom operator has agreed to pay $4.8 billion to acquire
Yahoo started off as the entry point for those who were new to the world wide web back in the late nineties. It was a key player in the dot-com era. The former search giant was valued at roughly $125 billion at its prime. But then it lost direction and focus, and failed to keep up with peers who proved to be far more innovative.
After more than a year of struggle, declines and unprecedented complexities, we have reached what appears to be the finale of an out-stretched sale process at Yahoo for the beleaguered search giant’s core assets.
For the most part, analysts on Wall Street have had varied views of the real worth of Yahoo’s internet assets with estimates ranging from $3 billion to about $8 billion.
Yahoo announced the launch of a formal sale process in the last week of February after a year of indecisiveness between executing turnaround strategies and exploring a strategic alternative. Over the course of deciding whether to actually sell or not, the company has gone through both structural and compositional changes.
Many would argue that a 107 employees being made redundant at Yahoo’s headquarters in Sunnyvale sparked the storm of skeptical comments about CEO Marissa Mayer’s proposed turnaround strategy. The mass redundancies caused Yahoo to cough up a considerable amount of cash to settle unfair dismissal lawsuits.
For a decent period of time, Mayer and her team had appeared convinced that slashing off 15% of the workforce along with other cost containment methods and an improved focus on mobile was a good way to bring back Yahoo’s credentials and help it reconnect with its audience.
However, a group of activist investors that goes by the name of Starboard Value LP waged a proxy war against Yahoo. After a prolonged period of negotiations between the two, Yahoo was forced to give Starboard’s CEO Jeffrey Smith and his associates, four seats on the board.
Up until Friday, Yahoo appeared to have a list of suitors willing to pay good money for the beleaguered search giant’s core assets, patents and real estate. The shortened list included
Verizon: The Final Resting Place For Once-Mighty Internet Players
Since the beginning of the sale process, Verizon had been considered the favorite in the race for Yahoo’s assets, considering its acquisition of AOL last year for $4.4 billion and deep pockets. AOL Chief Tim Armstrong had also been reported hovering close to the discussions, with widespread chatter that Yahoo would be fully integrated with AOL. Reports in May had suggested that in case Verizon does seal the deal with Yahoo, Mr. Armstrong would replace Ms. Mayer and would serve as an interim CEO in a joint AOL-Yahoo.
The deal is expected to close in the first quarter of fiscal year 2017, subject to customary closing adjustments and the transaction will be carried out all in cash.
Verizon currently has a mobile video app called go90 and it acquired Huffington Post and Tech Crunch in the AOL deal. If this acquisition comes through, Yahoo Finance, Yahoo Sports and Yahoo News will bring in millions of more viewers for Verizon to monetize. It would also be able to tie-in all of that content and search features into existing packages for its users.
However, Yahoo’s web properties are faltering for the following reasons:
- Content appears outdated and unorganized – way behind today’s social media standards
- Monetization of user traffic is not optimum compared to peers.
- Falling market share means Yahoo’s time just appears to be done and over.
Finalizing the deal will mark the end of Yahoo’s era as an operating company. However, the independent committee, set up to overlook the sale process, will have to dispose of some 3,000 patents in a separate auction, which will be held after the paperwork is complete.
As far as Mayer’s future at the helm is concerned, it is not certain whether she would have much value in a Verizon-controlled Yahoo. However, getting terminated would result in the former Google executive netting roughly $150 million in cash, compensation and equity.
It’s not all bad for Yahoo shareholders. They are left with a promising 35.5% stake in the Softbank-controlled Yahoo Japan and a 15.5% stake in Chinese e-commerce giant, Alibaba Group. These assets had already contributed the lion’s share of Yahoo’s $36 billion valuation. Upon completion of the Verizon deal, remaining shares will essentially become tracking stock for Alibaba.
Yahoo’s management had previously postponed intentions of relieving itself from the Asian assets in what was hoped to be a tax-free spin-off in each country. A buyback from Alibaba would still keep those hopes lit up.
By: Muqeet Khan
