Drawn-out Yahoo auction at an end
Internet company has fallen on hard times after series of strategic, managerial missteps
SAN FRANCISCO— The gavel is finally poised to drop in the drawn-out auction for Yahoo’s core Internet business.
Final bids for the services, which include Yahoo’s search, email, advertising and media operations, are due Monday, with the board set to make a decision soon afterward, according to people briefed on the process who asked for anonymity because the bidding was confidential.
The sale of Yahoo’s business would close out a largely unsuccessful fouryear effort by Marissa Mayer, the company’s chief executive, to turn around the Internet company.
Although Yahoo was once the place where many web users began their wanderings, it fell on hard times over the last decade through a series of strategic and managerial missteps. Although Yahoo’s properties still draw more than one billion visitors a month, the company accounts for a tiny slice of the time people spend online.
The Silicon Valley Internet company has conducted several rounds of bidding since February, when it an- nounced it would explore a sale to separate its struggling operations from its much more valuable investment stakes in two Asian Internet companies, Alibaba and Yahoo Japan.
The process was eased this spring when the company settled a dispute with a persistent critic, the hedge fund Starboard Value, giving the activist investor four board seats.
The bidders for Yahoo’s operations include the telecommunications giants Verizon Communications and AT&T, several private equity firms and Quicken Loans co-founder, Dan Gilbert, who is getting financial backing from Warren E. Buffett’s Berkshire Hathaway.
The offers are expected to vary depending on what assets are included, but Wall Street expects the business to fetch as much as $6 billion, including intellectual property and land.
The field, winnowed from a bigger group of suitors, has a number of different plans in mind for Yahoo. Verizon — which has not been shy about discussing its interest in a deal — would probably merge Yahoo’s internet business with AOL, another one-time online giant, which it owns.
Some of the private equity firms plan to curtail costs sharply while working out ways to profit from Yahoo’s still-sizable audience.
Though several bidders have ac- knowledged running into what one called “hairy” issues, nothing has emerged as a deal-breaker. People involved in the auction describe it as competitive.
As the process has dragged on, Yahoo’s business, based on advertising, has continued to deteriorate. Recent product releases, like a new travel app, Radar, and new information bots for Facebook Messenger, have made barely a ripple.
Yahoo will report its second-quarter financial results Monday and analysts expect the company to post significant declines in revenue and profit.
Any sale of Yahoo has been slowed by a trickle of unpleasant revelations to bidders about expensive decisions made by Mayer, a former Google executive who was named Yahoo’s chief in July 2012.
The biggest surprise: in late June, Yahoo told bidders they could be on the hook for more than $1 billion in immediate payments to Mozilla, the company that makes the Firefox web browser.
In a 2014 deal, Yahoo promised to pay Mozilla at least $375 million a year to make Yahoo the default search engine on Firefox — about $100 million a year more than Alphabet’s Google unit was then paying for similar prominence, according to Yahoo and Mozilla filings.
To sweeten the deal, Mayer person- ally negotiated a provision that gave Mozilla unusual leverage to demand all remaining payments upfront if Yahoo were sold, according to people briefed on the terms of the contract.
To set off the payout, Mozilla would have to show that the change in ownership was hurting the Mozilla brand and degrading the search experience, according to one of the people briefed on the terms.
If Mozilla switched to another search provider instead, Yahoo would only have to make up the difference between its $375 million annual guarantee and the fee paid by Mozilla’s new partner.
The deal’s provisions put pressure on any winning bidder to continue Mayer’s heavy investments in search, which she has championed despite the long odds of success against Google. About 42 per cent of Yahoo’s $5 billion in revenue last year came from search.
Yahoo decided the contract’s provisions were not significant enough to disclose to shareholders, despite a series of letters last year from the Securities and Exchange Commission asking the company to lay out the terms of the agreement and the risks to Yahoo. A spokeswoman for the agency declined to comment on the dispute.
A Yahoo spokeswoman, Rebecca Neufeld, declined to comment on the Mozilla contract or the broader sale process.
Denelle Dixon-Thayer, the chief legal and business officer of Mozilla, said she could not discuss specific terms of the Yahoo contract because of a confidentiality clause, but she acknowledged that Mozilla had protected itself from “downside risk.”