Adam Putz July 25, 2016
At last, the other suitors have left the party and Verizon (NYSE, NASDAQ: VZ) and Yahoo (NASDAQ: YHOO) have entered into an agreement under which Verizon will acquire Yahoo’s operating business for approximately $4.83 billion in cash.
The valuable components of Yahoo’s business—Yahoo Finance and Yahoo Sports, which survived a February cull that included Yahoo Health—go some but by no means all of the way toward explaining the pickup. Rather, the deal for one of the real antiques of the early internet represents Verizon’s attempt to square the circle it created with last year's $4.4 billion purchase of AOL. And that means making a play for an even broader user-base on the cheap in order to become the third major digital advertiser in the U.S., albeit light years behind the revenues generated by Google and Facebook.
But there’s also a significant international component to consider. Yahoo provides roughly 225 million users with email services worldwide. That’s second only to Google, of course, but it also boasts about 1 billion active users each month, with 600 million per month using mobile services—which is just fine for Verizon, a company that exists largely in the minds of many Americans as their cell phone carrier and little else. The acquisition of Yahoo may not change all of that, but it does expand the company’s global footprint without needing to set up a single new network.
Moreover, the acquisition builds on a series of deals to increase Verizon’s share of streaming video services as the U.S. net neutrality debate continues to unfold. Verizon purchased Intel’s internet TV service OnCue in 2014. It has since joined Hearst in an agreement to acquire Complex, in addition to taking a stake in Dreamworks’ AwesomenessTV, two more nine-figure transactions announced back in April. (Verizon’s completed acquisitions to date can be found here.)
AOL’s relatively short history with Verizon points the way forward for future Yahoo branding, as the deal excludes, according to SEC filings, Yahoo’s cash, its shares in Yahoo Japan and its shares in Chinese ecommerce giant Alibaba. So, it’s likely that proven survivors like Yahoo Finance and Yahoo Sports will retain their identity under Verizon ownership much as AOL’s Huffington Post and TechCrunch did after that deal went down. Yahoo's 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. Remaining assets, called the Excalibur portfolio, held by Yahoo alongside its non-core patents will form the core of a registered, publicly traded investment company that will not bear the company’s iconic name.
It’s been awhile since Yahoo secured a $2 million Series A led by Sequoia in 1995 or, at the height of the dot-com bubble, enjoyed a roughly $140 billion market cap. Here’s a short history of Yahoo’s missed opportunities that really show how Verizon has won a long, drawn-out game that changed from let's make a deal to let's make a steal:
January 2008 - Microsoft (NASDAQ: MSFT) puts a $44.6 billion cash-and-stock takeover offer before Yahoo's board.
February 2008 - Yahoo begins talks with Time Warner to merge AOL with Yahoo in exchange for Time Warner taking a stake in the merged company. Yahoo rejects the Microsoft offer as too low.
July 2009 - CEO Carol Bartz signs a 10-year search partnership with Microsoft, leaving the bulk of Yahoo’s web indexing to Microsoft in a bid to outcompete Google.
October 2010 - Private equity firms, along with AOL and News Corp, express interest in Yahoo.
October 2011 - Microsoft along with Silver Lake and the Canada Pension Plan Investment Board consider acquiring Yahoo for $20.6 billion.