Verizon to buy Yahoo

Verizon to buy Yahoo's core business for $4.8 billion in digital ad push

NEW YORK | BY MALATHI NAYAK

Verizon Communications Inc said on Monday it would buy Yahoo Inc's core internet properties for $4.83 billion in cash, marking the end of the line for a storied Web pioneer and setting the stage for a big new internet push by the telecom giant.

Verizon (VZ.N) will combine Yahoo's (YHOO.O) search, email and messenger assets as well as advertising technology tools with its AOL unit, which it bought last year for $4.4 billion. Verizon, the No. 1 U.S. wireless operator, has been looking to mobile video and advertising for new sources of revenue outside the oversaturated wireless market.

The deal came after activist investors led by Starboard Value LP lost faith in Yahoo Chief Executive Officer Marissa Mayer, who was hired in 2012, and forced what became a protracted sale process.

Yahoo, founded in 1994, was a dominant player in the early days of the internet, but has long lost its leadership position in internet search and advertising to Google (GOOGL.O>, Facebook (FB.O) and others.

Mayer said on a conference call with investors that she planned to stay at Yahoo through the deal's close. Marni Walden, head of product innovation and new business at Verizon, will head the combined internet unit and said no decisions had yet been made on the management team.

Verizon could combine data from AOL and Yahoo users in addition to its more than 100 million wireless customers to help advertisers target users based on online behavior and preferences.

"Yahoo gives us scale that is what is most critical here," said Walden, adding that the company's audience will go from the millions to the billions. "We want to compete and that is the place we need to be."

Mayer, in an interview with Reuters, said she still saw a "path to growth" for Yahoo, especially in mobile. "What's exciting about the Verizon transaction is that it brings us back to growth sooner," she said. She said she was "open-minded" about a possible role with the combined companies.

Yahoo is still one of the largest properties on the internet, with hundreds of millions of customers using its email, finance and fantasy sports offerings, among others, and a heavily trafficked home page.

But Google has a stranglehold on the internet search business and built an industry-leading email service, while Facebook dominates in mobile and social media. Meanwhile, traditional web banner advertising, long Yahoo's strength, has become much less lucrative in the age of mobile and video.

"It's a decade of mismanagement that has finally ended for Yahoo," said Recon Analytics analyst Roger Entner. "It's the continuation of an extension of Verizon's strategy toward becoming a wireless internet player and a move away from (telecom) regulation for Verizon into an unregulated growth industry."

Shares of Verizon dipped 0.4 percent to $55.88, Yahoo fell 2.6 percent to $38.37.

FAR BEHIND GOOGLE, FACEBOOK

The integration of Yahoo will not come without challenges. In its latest results, it reported a second-quarter net loss of $439.9 million as it wrote down the value of Tumblr, the microblogging and social media service it acquired in 2013 for $1.1 billion.

With AOL and Yahoo, Verizon would still be far behind juggernauts Google and Facebook (FB.O). According to market research firm eMarketer, Yahoo is expected to generate $2.32 billion in net U.S. digital ad sales, while AOL is expected to make $1.3 billion in 2016.

Facebook and Google are forecast to deliver sales of $10.3 billion and $24.63 billion, respectively, by the end of this year, according to eMarketer.

The Verizon deal would transform Yahoo into a holding company, with a 15 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd (BABA.N) and a 35.5 percent interest in Yahoo Japan Corp (4689.T) as well as Yahoo's convertible notes, certain minority investments and its noncore patents.

Yahoo executives said the remaining company is structured to "indefinitely" hold its Yahoo Japan and Alibaba stakes. They are worth about $40 billion based on their market capitalizations, while Yahoo had a market value of about $37.4 billion at Friday's close.

Yahoo will continue as an independent company until the deal receives shareholder and regulatory approvals, the companies said. It is expected to close in early 2017. It plans to change its name and become a publicly traded investment company.

Yahoo currently has $7.7 billion in cash, in addition to the $4.8 billion it will receive at the close of the deal, which it plans to return to shareholders, Yahoo executives said on the call.

Verizon prevailed over rival bidders, including AT&T Inc (T.N); a group led by Quicken Loans founder Dan Gilbert and backed by billionaire Warren Buffett; private equity firm TPG Capital Management LP [TPG.UL]; and a consortium of buyout firms Vector Capital and Sycamore Partners.

Under pressure from Starboard, Yahoo launched an auction of its core business in February after shelving plans to spin off its stake in Alibaba.

(Additional reporting by Anya George Tharakan in Bengaluru and Deb Todd in San Francisco; Writing by Jonathan Weber; Editing by Bernadette Baum and Jeffrey Benkoe)