JULY 25, 2016 – Yahoo’s core internet business is to be sold to US telecoms company Verizon Communications for $4.8bn.The announcement will come before the start of New York trading hours, the source added.
Verizon will acquire Yahoo’s core assets including search, email and instant messaging, along with its advertising technology. Contradicting earlier reports, the deal will also include a number of real estate assets.
The deal, which is expected to be formally announced later today, ends a bidding process that began in February when CEO Marissa Mayer finally bowed to shareholders’ demands to sell the internet business. Suitors included Quicken Loans founder Dan Gilbert, communications giant AT&T and private equity firms Vector Capital Management and TPG.
As reported last week, Verizon was the favourite to win despite not being the highest bidder as its business model is closest aligned to that of Yahoo. The other potential buyers were thought more likely to break up the company to realise the value of its assets.
During the process, Verizon raised the value of its second-round bid, reported at around $3.5bn for core assets excluding patents and real estate, once it became clear that rival AT&T had joined the race.
With the market for cable TV reaching saturation point, Verizon has been looking to online advertising as a way of achieving growth. Last year it bought AOL for $4.4bn and with it that company’s mobile video and online advertising technology as well as Huffington Post, Techcrunch, Engadget and other news sites. Verizon is likely to merge Yahoo with these holdings to fill gaps in its current portfolio such as in native advertising and search.
The takeover will double the size of Verizon’s digital advertising, placing it a distant third behind Google and Facebook in the $187bn market, according to Bloomberg.
“The deal speaks to a clear strategy shift at Verizon,” said Craig Moffett, an analyst with MoffettNathanson. “They are trying to monetise wireless in an entirely new way. Instead of charging customers for traffic, they are turning to charging advertisers for eyeballs.”
Verizon with AOL currently holds a 1.8 per cent of the $69bn US digital ad market, according to the Wall Street Journal in the US, with Yahoo controlling about 3.4 per cent. By contrast, Google and Facebook combined make up half of the total.
Potentially, then, while it will still be a long way behind the online and mobile advertising leaders, buying Yahoo will at least give Verizon a firm base from which to further expand its market share.
