US telecommunications giant Verizon (VZ:NYSE) and internet pioneer Yahoo (YHOO:NASDAQ) have agreed to deal terms that will see Yahoo’s core business transferred to Verizon alongside some other assets, marking the virtual end of one of the Internet’s first major players. Yahoo has been struggling for years to remain relevant after competition such as Google and Facebook made their offerings obsolete, putting their revenues in terminal decline.
The deal also marks the end of a contentious period of leadership for Yahoo, which saw several attempts by shareholders to wrestle power away from the board and management while trying to force a sale or wholesale changes in the administration. In the end, Verizon will be gaining Yahoo’s advertising and user-tracking technology, which it plans to merge with the recently acquired AOL. Both companies saw their shares improve as reports of the acquisition began to emerge.
Extending a Lifeline
Verizon has offered to purchase Yahoo’s core business in a move that will begin what is likely the unraveling of Yahoo’s formerly great internet media empire. Yahoo, once valued at $125 billion and the face of the internet, has fallen on hard times and has been leaking profits for years. In recent years, CEO Marissa Mayer has attempted to right the ship through a series of restructurings and acquisitions, but has been unable to stop the company from losing advertising ground to giants Facebook and Google. In the second quarter of 2016 the company reported losses of $440 million, and the company’s valuation excluding holdings in other companies has plunged since the early 2000s.
Last year, the company was offered a chance to merge with AOL, but the board turned down the offer, angering many shareholders and triggering a power struggle between the board and investors. In the end, CEO Mayer and the board announced that the company was looking to sell Yahoo’s core business—its internet and advertising department. The process which started in February, picked up steam as several parties showed interest in acquiring Yahoo’s core business assets—including Bain Capital, TPG, and a group led by Dan Gilbert. The sale hit a turning point in June when Verizon made an initial offer of $3 billion for the company’s core business and later expanded it to include Yahoo’s real estate assets and some of the company’s intellectual property. The deal does not include Yahoo’s minority stakes in Yahoo Japan or e-commerce company Alibaba—holdings valued at $41 billion.
What It Means for Yahoo and Verizon
Once the deal is cleared, the process of unraveling a company that was one of the first winners in the first dot com boom will commence. Yahoo’s core business of internet services and advertising, as well as its real estate assets will be sold to Verizon. Additionally, the terms cover the sale of over 3,000 patents the company has held since its original IPO in 1996, valued at approximately $1 billion. All shares in Alibaba and Yahoo Japan will remain with the shareholders.
The move makes sense for Verizon, which is looking for ways to monetize its wireless network and user data. The company has already purchased AOL for a similar amount and will most probably look to combine both companies’ internet assets. AOL’s user data and tracking tools joined with Yahoo’s advertising and search technology will help to improve Verizon’s mobile offerings including news, e-commerce, and advertising.
Both companies saw shares rise over the weekend as speculation about the acquisition gained momentum. Yahoo shares climbed by 1.40% on Friday, while Verizon shares saw similar gains of 1.30% to finish at $56.10.