Yahoo!’s (YHOO) Core Business Sold to Verizon Communications Inc. for $4.83B

Shares of Yahoo! Inc. (YHOO) were trading down -0.27 or -0.70 percent to $38.05 per share in Tuesday’s premarket after news broke early yesterday that the company would sell its core Internet business to Verizon Communications Inc. (VZ) for $4.83B. Yahoo! stock closed at $38.32 per share, down -1.06 or -2.69 percent in Monday’s regular trading session.

Stock Analysis

Founded by David Filo and Jerry Yang in 1994, Sunnyvale, California based Yahoo! Inc. is a global Internet corporation best known for its web portal and search engine.
The company also provides a variety of other Internet services including Yahoo Mail, Yahoo News, Yahoo Finance, advertising, video sharing and social media, to name only a few. According to web analysts, Yahoo websites are visited by 700 million people per month with as many as 7 billion readers on their news and media websites which are in more than 30 languages.

Founded in 1983 as Bell Atlantic, New York City based Verizon Communications Inc. is one of three remaining “Baby Bells” along with ATT (T) and CenturyLink (CTL). These companies were originally spun off from the ATT Corporation when the company was ordered by the U.S. Justice Department to give up control of the Bell System. Bell Atlantic then merged in 2000 with GTE, changing its name to Verizon Communications Inc. Verizon Communications is the largest wireless communications provider in the United States offering global Internet, digital television and network services, as well as fixed telephony, broadband and fixed line Internet services.

The deal, which was announced yesterday, was not unexpected and will combine data from Yahoo’s search engine, messenger and email sites with Verizon’s recently acquired AOL unit. Verizon bought AOL last year for $4.4 billion. Yahoo has 200 million unique monthly visitors, while AOL has about 150 million monthly users. The company will further combine the data with its own user base of 100 million wireless subscribers and be able to offer an enhanced targeted service for advertisers.

The transaction originated with a major shareholder of Yahoo!, Starboard Value LP leading a group of activist investors in pursuing a sale of the assets. The investor group had become disappointed with Yahoo! Chief Executive Marisa Meyer, who took the helm in 2012. Since then, a number of failures have caused Yahoo! to decline, including its $2.2 billion takeover of Tumblr. Yahoo! lost over $400 million last year.

Mayer told investors on a conference call that she plans on staying with the company through the closing of the transaction. Verizon’s head of product innovation and new business, Marni Walden will lead the combined Internet unit with no decisions yet on who will be on the management team. Mayer said that she was “open minded” about the possibility of playing a role in the combined company.

After the deal’s close, Yahoo! will become a holding company, with its 35.5 percent interest in Yahoo Japan Corp. and a 15 percent stake in Chinese e-commerce giant, Alibaba Group Holding Ltd (BABA). According to Yahoo executives, the remaining Yahoo will be structured to hold its Japanese and Chinese assets “indefinitely”. The combined assets are estimated to be worth over $40 billion based on their market caps, while Yahoo! Inc. had a market value of just $37.4 billion as of Friday’s market close.

In a related note, Verizon Communications reported second quarter earnings early this morning. The company reported earnings of $0.94 per share on revenue of $30.53 billion versus $1.04 per share on $32.22 billion in revenue in 2015’s second quarter. The analyst consensus was for earnings of $0.92 per share on revenue of $30.94 billion.

Other News About YHOO

 The identity crisis that led to Yahoo's demise

Article on the company’s situation that led to the sale of its assets.

Yahoo’s Holders Await Next Moves

Company’s shareholders look at new beginning after the sale.

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Published on Jul 26, 2016
By Jay Hawk
Jay Hawk
Jay Hawk enjoyed a 12-year professional financial markets career incorporating extensive first hand futures and options experience obtained by trading in the stock, commodity and forex markets on U.S. exchanges. Since retiring as a full-time financial market professional, he has been actively trading stock, commodities, forex and options for his own account and managing funds for others, as well as writing financial market commentary and educational articles.

Copyrighted 2016. Content published with author's permission.

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