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Yahoo confirms nearly $5bn sale deal with Verizon

Verizon Communications to boost its advertising business by acquiring Yahoo's client database in a $4.83bn deal

Yahoo has confirmed it has reached an agreement to sell its core business to Verizon Communications for $4.83bn in cash.

Confirmation of the deal ends months of speculation over the future of the beleaguered internet company and comes just days after Yahoo reported a $440m loss in the second quarter.

Verizon Communications first emerged as a potential buyer in December 2015, when Yahoo abandoned plans to sell off its $32bn stake in Chinese e-commerce group Alibaba, fuelling speculation that it may sell off its internet business.

In February 2016, Yahoo announced a strategic review that included exploring sales options, cutting 15% of Yahoo’s global workforce and closing down five offices outside the US and seven digital magazines.

The announcement kicked off a bidding process that attracted interest from AT&T, Verizon subsidiary AOL, Google’s parent body Alphabet, Time, Microsoft and The UK’s Daily Mail parent company, as well as Verizon Communications.

Marissa Mayer is the latest of seven chief executives or acting CEOs that have failed to turn the company around in the face of competition from Google and Facebook. She said the sale of Yahoo’s operating business effectively separates its Asian asset equity stakes and is an important step in the company’s plan to unlock shareholder value.

Activist investor Starboard Value has long been pushing for Yahoo to sell its core business to help revive the company’s revenue growth and has also called for new leadership.

“This transaction also sets up a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising and social,” said Mayer in a statement.

Mayer added that Yahoo and AOL popularised the internet, email, search and real-time media. “It’s poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile,” she said.

In answer to speculation about Mayer’s future, she said in an email to staff that she is “planning to stay” and that it was important to her to “see Yahoo into its next chapter”.

Mayer has faced mounting criticism from investors as the string of mobile-focused acquisitions she has overseen in the past four years has failed to boost revenues.

Mobile media competition

The deal comes just over a year after Verizon Communications acquired AOL.

Lowell McAdam, Verison chairman and CEO, said the deal will put Verizon in a highly competitive position as a top global mobile media company and help accelerate Verizon’s revenue stream in digital advertising.

Yahoo, which has 1 billion monthly active users – including 600 million on mobile devices – will be integrated with AOL.

The combined business is to be led by Marni Walden, executive vice-president and president of the product innovation and new businesses organisation at Verizon.

Tim Armstrong, CEO of AOL, said the deal is about “unleashing Yahoo’s full potential”, building on “collective synergies” and strengthening and accelerating that growth.

“Combining Verizon, AOL and Yahoo will create a powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers,” he said.

Armstrong said AOL and Yahoo combined will have more than 25 brands for continued investment and growth.

Technology assets in the advertising space will include Brightroll, a programmatic demand-side platform; Flurry, an independent mobile apps analytics service; and Gemini, a native and search advertising solution.

Using customer data to improve user experience

Shar VanBoskirk, principal analyst at Forrester, said the deal makes a lot of sense because “Verizon wants Yahoo to fill out its omni-channel content and advertising play.”

“For all the wobbliness of Yahoo’s brand identity, the Yahoo brand still holds a lot of consumer-affinity,” she wrote in a blog post, which could be a “nice boost” for the telco.

According to VanBoskirk, the most valuable part of Yahoo is its data assets, not its existing content. “The more access to customer data Verizon has – online through Yahoo and AOL, in home via cable boxes, on mobile via smart devices – the more targeted it can be with advertising and sponsored content or product placements across those same devices.

“This allows Verizon to create better ad products which is competitive against primarily online giants, such as Google, and creates a better user experience which is competitive against other cable and telecom providers,” she said.

The deal is subject to customary closing conditions, approval by Yahoo’s shareholders and regulatory approvals. It expected to close in the first quarter of 2017.

Until the deal closes, Yahoo will continue to operate independently, offering and improving its own products and services for users, advertisers, developers and partners, the company said.

The sale does not include Yahoo’s cash, its shares in Alibaba Group Holdings, its shares in Yahoo Japan or Yahoo’s non-core patents.

These assets will continue to be held by Yahoo, which will change its name at closing and become a registered, publicly traded investment company. 

The company did not provide any further details about its future, but said it intends to return all of its net cash to shareholders through capital return strategy to be confirmed at a later date.

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