YAHOO’S DEMISE: Yahoo fell $1.04, or 2.6 percent, to $38.33 after the company announced that Verizon would buy Yahoo’s advertising, media and email businesses for $4.83 billion, ending a five-month auction.
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“It now becomes somewhat easier to justify investing in content”, said Brian Wieser, an analyst at Pivotal Research.
Technology analyst Jack Gold of J. Gold Associates said the deal makes sense with telecom companies such as Verizon and AT&T seeking to move beyond their role as carriers.
Mayer, a former high-profile Google executive, was brought in as Yahoo’s CEO in 2012 to architect a turnaround that has largely failed to materialise.
Yahoo has come under pressure from shareholders angry with a downturn in its performance over the past eight years as it lost out to the likes of Google and Facebook.
Bloomberg first reported the deal would be announced on Monday for $4.8 billion.
Yahoo’s early investment in Alibaba, made in 2005, has appreciated in value so much that the company would likely have to pay more than $12 billion in tax if it chose to sell its stake, according to Morningstar analyst Ali Mogharabi.
In its announcement, Verizon did not discuss Mayer’s future or its long-term plans for Yahoo. “We have enormous respect for what Yahoo has accomplished: this transaction is about unleashing Yahoo’s full potential”, Armstrong said in a statement.
After those matters are settled, she said she is “very open-minded”.
– Yahoo’s finances have been skewed by its stake in China’s Alibaba.
Armstrong explained that Google’s power is based on its search capabilities and Facebook is the leader in social media.
“Verizon will be the corporate master and exercise control but they want to create opportunities for innovation and not impose a culture that will send employees out the door”.
“It’s a decade of mismanagement that has finally ended for Yahoo”, said Recon Analytics analyst Roger Entner.
“It is possible for Verizon to use some corporate oversight and still give its new business unit enough autonomy… to attract talent and be creative”, he said.
According to market research firm eMarketer, Yahoo is expected to generate $2.32 billion in net US digital ad sales, while AOL is expected to make $1.3 billion in 2016. “Trying to do what Google and Facebook do is not a good strategy”.
Yahoo investors must continue to focus on the complexities of getting value from the Asian holdings, especially the hefty Alibaba stake. It bought a 40 percent stake in Alibaba in 2005 for $1 billion and its current holding is now worth some $30 billion – the vast majority of Yahoo’s market value of around $37 billion. Apart from unease over rising USA gasoline stocks during the peak summer driving season, investors are anxious over European banks: “Concerns about the Italian banking sector threaten to rear their ugly head again this week as all European banks undergo stress tests”, he said. It declined to name the options but noted that it has “dramatically expanded its digital products” beyond the Yahoo7 business.
After the Verizon deal closes, Yahoo intends to rename itself and register with the U.S. Securities and Exchange Commission as an investment company.
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With the sale of its core, Yahoo will be left as a separate investment company that will change its name after the transaction.
