Yahoo sale ends an era
SUNNYVALE, Calif. – Ending a storied chapter in Silicon Valley history, Verizon is the winning bidder for Yahoo’s internet business and will pay $4.8 billion for the core of the troubled company, the two firms confirmed Monday.
The deal will be finalized in the first quarter of 2017, pending approval from shareholders and regulators. Yahoo’s stakes in Chinese commerce giant Alibaba and Yahoo Japan, worth about $40 billion combined, will remain with the Sunnyvale-based firm, which will be renamed as a registered investment company.
Yahoo CEO Marissa Mayer said Monday she would stay on through the transition.
“Yahoo is a company that has changed the world and will continue to do so through this combination with Verizon and AOL,” Mayer said. “Yahoo and AOL popularized 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.”
Mayer, if ultimately let go by Verizon, would reap a $55 million golden parachute, according to a Securities and Exchange Commission filing.
Verizon, the largest U.S. phone carrier, was not the highest bidder, Yahoo board member Tom McInerney said. “Verizon’s transaction was the one that was the best for shareholders.”
Officials with Verizon, which bought digital media company AOL last year for $4.4 billion, said the purchase of Yahoo will create a major new player in digital advertising, and boost ad revenue.
“Combining Verizon, AOL and Yahoo will create
a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers,” AOL CEO Tim Armstrong said.
The sale caps five months of speculation about the fate of the once-mighty tech icon and highlights the dramatic fall of a company that had a market capitalization of more than $125 billion during the dot-com boom.
It also marks the end of Mayer’s unsuccessful efforts to turn around the company.
For Verizon, based in Basking Ridge, N.J., the deal offers Yahoo’s billion monthly users, and content that can go along with that of digital media company AOL. SunTrust analyst Robert Peck earlier this year said if an internet and telecommunications company such as Verizon bought Yahoo’s core assets, it could cut 40 percent of Yahoo’s workforce because of overlaps in management, administration and sales. Yahoo has already laid off at least 1,600 workers since announcing reductions in February.
Yahoo put its internet business up for sale in February. It was a victim of missed opportunities, unproductive purchases and the unceasing innovation of its competitors, primarily Google and Facebook. Yahoo failed to recognize the importance of social networking and was slow to make the leap into mobile devices such as smartphones and tablets. Yahoo attempted to buy Google and Facebook in their formative years, but it was rebuffed and then later dwarfed by them.
Central to the story of Yahoo’s fall, of course, is Mayer, hired in 2012 — the fourth CEO in four years — to turn around a company still punch-drunk from the financial crisis of 2008. Mayer focused her strategy on acquisitions — for product development and to secure proprietary technology and talent. Activist investor Eric Jackson of SpringOwl Asset Management would later label the purchases “misallocations.”
In 2013, Yahoo paid $1.1 billion for Tumblr, expecting $100 million in annual revenue from the blogging platform. In its most recent quarterly report, in July, Yahoo revealed it had written down the value of Tumblr by $482 million, after writing it down by $230 million in March.
In 2014, Yahoo fell out of the Fortune 500 for the first time.
Yahoo co-founders Jerry Yang and David Filo began building a web directory as Stanford University graduate students in 1994. Incorporated in 1995 as a directory to the World Wide web, Yahoo began selling ads, and went public the next year.
By March 2000, it embodied the dot-com bubble: from January 1998’s $3 billion market capitalization, it had zoomed to more than $125 billion. Then the bubble popped, smacking Yahoo’s market cap down to around 5 billion by the fall of 2001.
Yahoo continued an up and down course. Its fortunes began to sweep steeply upward again in 2004, when the company hit $3.6 billion in revenue. Yahoo nearly doubled its head count, to more than 14,000 workers by 2007. Then came the financial crisis, and revenue began to slide.
In the meantime, Google replaced Yahoo as the go-to site for searching the web.
By 2007, Google had cracked the 50 percent mark in share of all U.S. desktop searches, according to comScore, while Yahoo had 27 percent. By November 2014, Google was at 67 percent to Yahoo’s 10 percent. Since then, Yahoo has rallied somewhat, according to comScore data, hosting about 12 percent of U.S. searches as of June, compared to Google’s 64 percent.
Meanwhile, Facebook was turning the world into a popular version of a Yahoo chat room.