SAN FRANCISCO: Verizon is buying Yahoo for
$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 has snapped up the remnants of a fallen internet star
as it broadens its digital reach. United State's largest wireless
carrier paid $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, who worked with her as executives
at Google for years and tried unsuccessfully to convince her to combine
the two companies when they both remained independent.
"We
have enormous respect for what Yahoo has accomplished: this transaction
is about unleashing Yahoo's full potential," Armstrong said in a
statement.
Most analysts expect the deal to end the
four-year reign of Yahoo's Mayer, a former Google executive who flopped
in her attempts to turn around the Sunnyvale, California, company.
Mayer,
though, told employees in a Monday email that she intends to stay,
though she didn't say 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., 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 has been deepening
even though advertisers have been pouring more money into what is now a
$160 billion market for digital advertising, according to research firm
eMarketer.
Most of the money has been flowing to
internet search leader Google and internet social networking leader
Facebook, two companies that eclipsed Yahoo during its slide from an
online sensation, once valued at $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 $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 $7.7 billion in cash.
Verizon is buying Yahoo's real estate, along with the online operations.
Yahoo
has hired a succession of CEOs to engineer a comeback, but finally gave
up after the high hopes that accompanied Mayer's hiring fizzled out.
The
sale potentially could result in thousands of layoffs. Mayer has
already jettisoned 1,900 Yahoo workers since last September.
If Mayer leaves following the sale, she will be in line to receive a severance package valued at $55 million.
As
people began to flock to the internet with the advent of graphical web
browsers in the 1990s, Yahoo was king. After co-founders Jerry Yang and
David Filo began building a web directory as Stanford University
computer graduate students in 1994, Yahoo quickly established itself as
the online hub for tens of millions of people. It also proved internet
companies could be profitable as other dot-com startups burned through
millions of dollars.
But Yahoo strayed from internet
search in an attempt to build a multimedia business, opening the door
for Google become a powerhouse. It didn't recognize the importance of
social networking and was slow to make the leap into mobile devices like
smartphones and tablets. Instead, Yahoo tried to buy Google and
Facebook in those companies' formative years, but it was rebuffed and
then dwarfed by them.
Mayer believes Yahoo can still come
back now it it's about to join a bigger company in Verizon. "Yahoo is a
company that changed the world and will continue to do so," she said
during a Monday conference call with analysts.
Despite
Yahoo's troubles, its operations are attractive to Verizon because the
wireless carrier is looking to capitalize on the growing number of
people living their digital lives on smartphones. Verizon already
profits from the data plans that connect more than 100 million people
using those devices to the internet; with AOL and Yahoo's services,
Verizon is now looking to control more of the advertising experience on
phones instead of surrendering control to Google and Facebook.
If
Verizon fully owned Yahoo right now, it would generate about $3.6
billion in U.S. ad revenue this year to eclipse Microsoft for third
place in the market, based on eMarketer's estimates. It would still be
far behind in ad revenue, compared with Google's projected $27 billion,
and Facebook's projected $10 billion.
AOL is best known
for the dial-up internet it popularized in the '90s and owns popular
media sites like Huffington Post and TechCrunch, but Verizon primarily
wanted its ad technology.
While Verizon also wants
Yahoo's ad services, it is also prizes 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 2 billion people by 2020, with a goal of $20
billion in mobile revenue by that time.
Yahoo says it has
more than 1 billion users, though Outsell analyst Randy Giusto believes
only about 200 million are habitual visitors.
"It's the
eyeballs that generate the advertising, you have to get to that
viewership to get the advertisers to advertise, and that's the model
that we have to follow," said Verizon CFO Francis Shammo at an
investment conference in May in response to a question about Yahoo's
appeal.
Given Verizon already owns AOL, Giusto says
Verizon is probably the best fit for Yahoo instead of the other suitors,
which also included private equity firms that specialize 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.
Yahoo's stock fell slightly at the open of trade Monday.
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