Ailing Yahoo is selling off its operating business for about US$4.8 billion to Verizon Communications, in a cash deal that will reduce the storied tech firm mainly to a holding company for its cash, stakes in Alibaba and Yahoo Japan, and non-core patents.
For Verizon, the acquisition will help it gain Yahoo’s 1 billion monthly active users, its internet properties and key applications like search and email, and its advertising systems. It will also be Verizon's second acquisition and integration of a web company, having acquired similar assets when it purchased AOL for $4.4 billion in 2015.
The transaction is expected to be completed by the first quarter of next year, subject to regulatory approvals, ending a long-drawn out bidding process for the company. After the transaction is closed, Yahoo will be integrated with AOL under Marni Walden, Verizon's executive vice president and president of the Product Innovation and New Businesses organization, the communications company said Monday.
The price Verizon is paying for Yahoo’s internet assets is a small percentage of the web company's market capitalization of over $125 billion during the peak of the dot-com boom, reflecting how badly the company has fallen out of favor.
Founded in 1994 by Jerry Yang and David Filo, Yahoo soon emerged as the entry point to the web for legions of users, who flocked to its portal, search engine, and email services. and more. But it was later overtaken in markets like search by newer competitors like Google. The company also failed to rise up to new market opportunities such as social networking and mobile.
In 2012, the company appointed Marissa Mayer, a former senior Google executive, as its CEO, amid high expectations that she would turn around the company.
"It’s poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile," Mayer said in a statement.
Yahoo posted a loss of $440 million on revenue of a little over $1.3 billion in the second quarter of this year. The large loss was mainly because of a $395 million write-off on account of the microblogging social network Tumblr, which Yahoo acquired in 2013 for over $1 billion.
Tumblr was to be Yahoo’s fresh foothold in the social media advertising market. Like most of the company’s diversification and acquisitions, however, including its bid to get into the mobile internet, it fell short of expectations. Mobile revenue at $378 million lagged behind the company’s desktop revenue of $875 million in the second quarter.
Yahoo had at one point last year considered spinning off its 15.4-percent stake in Alibaba Holding Group, through a company called Aabaco Holdings, but hesitated on the move because of uncertainties about potential tax implications.
A powerful investor group, Starboard Value, said the proposed spinoff of Aabaco was not Yahoo’s best option. It prevailed upon Yahoo to explore instead the sale of its core business of search and display advertising, while leaving its ownership stakes in Alibaba and Yahoo Japan in the existing corporate entity.
Verizon’s rivals in the auction were mainly private-equity firms such as Bain Capital, Vista Equity Partners, TPG and Advent International, besides a group led by Quicken Loans founder Dan Gilbert, according to reports. AT&T is also said to have participated in the bidding.