Yesterday, Verizon announced that it is acquiring Yahoo in a move no one would have predicted 10 years ago. Yahoo has been struggling in the advertising and search business as some of its rivals such as Facebook and Google see their market shares rise year after year.
For those who don’t know, Verizon is an American company that offers telecommunications products and services. The company has over 141 million subscribers and is the largest wireless communications provider in the US.
Well, the first question you may be asking is, how much did Verizon pay for Yahoo? That would be $4.83 billion and it marks the end of the 20 year run for Yahoo, the one-time internet giant. The deal will close in early 2017. $4.83 billion may seem like a small figure for Yahoo but keep in mind that Verizon is buying the core business and not everything owned by Yahoo.
What is Verizon Buying
As mentioned above, Verizon is acquiring Yahoo’s core business excluding some of its patents, cash (Yahoo currently has $7.7 billion) and stakes in Alibaba Group and Yahoo Japan. These will be left with the part of Yahoo that will be transformed into an investment company that will change its name after the transaction. The patents owned by Yahoo are expected to fetch about $1 and will be auctioned at a later date.
Yahoo has a market valuation of about $37.4 billion and its believed that most of this is a result of the stakes it holds in Alibaba and Yahoo Japan. The stakes it owns in Alibaba are valued at $32 billion while those in Yahoo Japan are valued at $8 billion. These will not be touched in the Verizon deal and will be part of the new investment company that will be formed. At the end of this all, there will be two entities, the one under Verizon and the one under the new investment company. What this deal basically shows is Yahoo
What will Verizon do with Yahoo
Verizon has always wanted to get into the advertising game and this acquisition of Yahoo will help with that. Verizon acquired AOL last year for $4.4 billion, it is believed that the company has plans to merge AOL and Yahoo to form a big digital group. AOL owns some of the biggest publishing websites out there including Huffington Post, TechCrunch, Engadget among others.
Merging AOL and Yahoo will provide Verizon with the resources to take on Google and Facebook. A statement from Verizon on this reads, “the goal is scale for advertising and publishing partners.”
Yahoo’s bad decisions
Interesting enough, back in 2002, Yahoo wanted to buy Google but the now internet giant wanted $5 billion (less than what Verizon is offering) which Yahoo did not accept. Then in 2008, Microsoft wanted to buy Yahoo for $40 billion but Yahoo turned down the offer. This would have been the best offer for Yahoo and its shareholders. Joining forces with Microsoft would have provided the company with the technology to take on Google in the search and advertising market.
Declining an acquisition from Microsoft is one of the reasons why Yahoo is where it is right now.