By Ryan Knutson and Deepa Seetharaman
Verizon Communications Inc. has agreed to pay $4.8 billion to
acquire Yahoo Inc., according to a person familiar with the matter,
ending a drawn-out auction process for the beleaguered internet
company.
The price tag, which includes Yahoo's core internet business and
some real estate, is a remarkable fall for the Silicon Valley web
pioneer that once had a market capitalization of more than $125
billion at the height of the dot-com boom.
For New York-based Verizon, the deal simply adds another piece
to the digital media and advertising business it is trying to
build.
The deal is expected to be announced early Monday. The news was
earlier reported by Recode and Bloomberg.
Verizon plans to keep the Yahoo brand, according to a person
familiar with its plans.
Yahoo's chief executive, Marissa Mayer, is unlikely to have a
prominent role -- if any -- under Verizon, people familiar with the
matter said. She stands to make more than $50 million in
compensation if she is terminated as a result of the sale, after
earning over $100 million in cash and equity.
When the bidding began in April, Verizon was the immediate
front-runner with a market capitalization of roughly $228 billion
and a plan for how to plug Yahoo into its upstart digital media
business, which includes AOL properties it acquired last year for
$4.4 billion.
Verizon's competition came primarily from private-equity firms
such as Bain Capital, Vista Equity Partners, TPG and Advent
International Inc., as well as a group led by Quicken Loans founder
Dan Gilbert. AT&T Inc. joined the bidding process later, but it
wasn't seen as a serious contender, people familiar with the matter
said.
Verizon in June submitted a bid of $3 billion, but that didn't
include Yahoo's real estate and came before last week's final round
of bidding.
Verizon is building a portfolio of online content and aiming to
monetize it via advertising. Its current assets include Huffington
Post and TechCrunch, which it acquired in last year's AOL deal, and
its own mobile video app, called go90. Acquiring Yahoo will bring
in millions more viewers from Yahoo sites like Finance, Sports and
News.
Verizon also hopes to plug data derived from smartphones into
AOL, and now Yahoo's, digital advertising systems, and it is aiming
to build a competitor to online advertising giants Facebook Inc.
and Alphabet Inc.'s Google.
But a combined Yahoo and AOL would be far outpaced by its now
far-larger rivals.
Google and Facebook will account for more than half of the $69
billion U.S. digital ad market this year, according to estimates by
data firm eMarketer. Yahoo's share is expected to be 3.4%; Verizon
properties including AOL hold an even-smaller 1.8% of the market,
according to eMarketer.
Yahoo's hold on the market is also slipping. In 2014, Yahoo
generated $2.54 billion in revenue from U.S. digital ads. That is
expected to be $2.32 billion in 2016, or 8.7% lower, according to
eMarketer.
"The headwinds for all large players not named Google and
Facebook are very real," said Pivotal Research analyst Brian
Wieser. "Noticeable growth only has a chance to come with ongoing
investment, whether M&A or internal."
Last week, Yahoo said second-quarter revenue, minus commissions
paid to partners for web traffic, fell 19%. This marked the sixth
decline in the past seven periods and the steepest slump under Ms.
Mayer.
The Sunnyvale, Calif., company also said display ad prices fell
15% year-over-year in the second quarter, while search ad prices
fell 8%. During a conference call with analysts, executives said
video ad prices were under pressure because of an influx of video
ad supply and "uncertainty" around the Yahoo sale process.
Ms. Mayer also struck a different tone. While past calls were
focused on growth, Ms. Mayer spent considerable time touting the
company's lower cost structure. Yahoo's head count has shrunk about
15% this year to 8,800 employees.
"The pace of cost cutting is significant," wrote Bernstein
Research analyst Carlos Kirjner in a July 19 note. "We suspect that
there will be a price to be paid in the future for these fast, deep
cuts, reflected in lower revenue growth."
Analysts are divided on the value of Yahoo's core business. The
decline in search revenue prompted Credit Suisse to cut its
valuation of Yahoo's core business to $7 billion, down from $8
billion. But that is more robust than Mr. Kirjner's estimate of
$3.4 billion.
The Verizon deal is the first major step toward unwinding Yahoo.
Next up is a trove of about 3,000 patents, which Yahoo is selling
in a separate auction, that is expected to fetch more than $1
billion.
The patents date back to Yahoo's initial public offering in 1996
and cover key areas such as e-commerce, online advertising and
search, including its original search technology.
Yahoo also will need to figure out what to do with its stakes in
Yahoo Japan Corp., majority-owned by SoftBank Group Corp., and
Chinese e-commerce company Alibaba Group Holding Ltd., considered
to make up the majority of Yahoo's roughly $36 billion market value
today.
Write to Ryan Knutson at ryan.knutson@wsj.com and Deepa
Seetharaman at Deepa.Seetharaman@wsj.com
(END) Dow Jones Newswires
July 25, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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