According to reports, the deal that will reduce the Internet firm to mainly holding its cash, stakes in Alibaba and Yahoo Japan and non-core patents.
For Verizon, the acquisition will help it gain Yahoo’s 1 billion monthly active users, its Internet properties and key applications like search and email, and its advertising systems. Verizon is not unfamiliar to the acquisition and integration of web companies after its 2015 acquisition of AOL for $4.4 billion, when it acquired similar assets.
The transaction is expected to be completed by the first quarter of 2017, subject to regulatory approvals, ending a long-drawn out bidding process for the company. After the transaction is closed, Yahoo will be integrated with AOL under Marni Walden, its executive vice president and president of the Product Innovation and New Businesses organisation at Verizon, the communications company said in a statement.
The price Verizon is paying for Yahoo’s Internet assets is a small percentage of its market capitalisation of over $125 billion during the peak of the dot-com boom, reflecting how badly the company has fallen out of favour.
Founded in 1994 by Jerry Yang and David Filo, Yahoo soon emerged as the entry point to the web for a large number of users of its services such as its portal, search engine and email. But it was later overtaken in markets like search by newer competitors like Google. The company also failed to rise up to new market opportunities such as social networking and mobile.
In 2012, the company appointed Marissa Mayer, a former senior Google executive, as its CEO, amid high expectations that she would turn around the company.
“It’s poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile,” Mayer said in a statement.
Yahoo posted a loss of $440 million on revenue of a little over $1.3 billion in the second quarter of this year. The large loss was mainly because of a $395 million write-off on account of the microblogging social network Tumblr, which Yahoo acquired in 2013 for over $1 billion.
Tumblr was to be Yahoo’s fresh foothold in the social media advertising market but like most of the company’s diversification and acquisitions, including its bid to get into the mobile internet, it fell short of expectations. Mobile revenue at $378 million lagged behind the company’s desktop revenue of $875 million in the second quarter.
Yahoo had at one point last year considered spinning off its 15.4 percent stake in Alibaba Holding Group, through a company called Aabaco Holdings, but hesitated on the move because of uncertainties about potential tax implications.
A powerful investor group, Starboard Value, said that the proposed spin-off of Aabaco was not Yahoo’s best option. It prevailed on Yahoo to instead explore the sale of its core business of search and display advertising, while leaving its ownership stakes in Alibaba and Yahoo Japan in the existing corporate entity.