By Wendy Lee, San Francisco Chronicle
Verizon bid $3 billion for Yahoo’s core business in the latest round of offers, according to the Wall Street Journal. The figure is less than what analysts expected the telecom giant might spend, for a smaller slice of Yahoo than they thought it might buy.
The move reflects the growing uncertainty about Yahoo’s future. The Sunnyvale tech giant has struggled over the years to turn its business from a desktop Web portal with banner ads to a mobile Internet business that can generate robust revenue. Over nearly four years, CEO Marissa Mayer tried to strengthen the business through acquisitions like mobile analytics firm Flurry and blogging platform Tumblr, but analysts say they have yet to see the return on those investments.
“Right now you’re buying three quarters of a finished building,” said Venky Ganesan, a managing director at Menlo Ventures. His firm invested in Flurry, which Yahoo bought in 2014.
Analysts had initially predicted that telecom giants like Verizon and AT&T would bid $6 billion to $8 billion for Yahoo, a sum that includes the core business of Internet properties and as well as Yahoo’s real estate and intellectual property — chiefly its patents — but not its stake in Yahoo Japan and Chinese e-commerce firm Alibaba. Verizon isn’t interested in the Yahoo real estate or patents, according to the Wall Street Journal, which cited an anonymous source.
Robert Peck, an analyst with SunTrust Robinson Humphrey, called the $3 billion bid “reasonable.” Yahoo’s patents, real estate and Asian assets could be sold off to other buyers, he said.
“It’s close enough to what investors were expecting,” Peck said.
Not bidding on the intellectual property could make the acquisition simpler because it could take time to evaluate how much each patent is worth, Peck said. Verizon may also plan to concentrate Yahoo employees at AOL’s hub in New York, rather than Sunnyvale, he added. Verizon owns AOL, having acquired it last year in a $4.4 billion deal.
Telecom companies have particularly been interested in Yahoo because of its large audience of more than 1 billion monthly users, which could aid their efforts to target advertising for customers.
On Tuesday, Verizon’s Chief Financial Officer Fran Shammo said at a conference that his company wants to build more viewership on its video platform and other products.
“Viewership matters because viewership drives advertising dollars, which drives the top line revenue,” Shammo said. “Yahoo has viewership. We’ll see whether we move forward or we don’t move forward.”
Analysts believe that Verizon would choose Tim Armstrong, CEO of AOL, to oversee Yahoo.
Some analysts also believe that AT&T is interested in Yahoo. AT&T could choose to keep Mayer or go with another prominent ad tech executive like Ross Levinsohn, Yahoo’s former interim CEO and media chief, analysts said.
Either company can afford to buy Yahoo, Peck said. “It’s going to be a matter of how bad each one of them wants to outbid private equity because of these cost synergies.”
Representatives of Yahoo, Verizon and AT&T declined to comment.
If Verizon buys Yahoo, analysts expect the tech giant’s footprint to be much smaller in Sunnyvale. Last year, the company was the city’s third-largest employer, with nearly 4,000 employees. Yahoo has already shed more than 200 employees from its headquarters this year, and analysts expect more job losses in a sale. If Yahoo’s buyer ends up declining to purchase its real estate, that could also cause a flood of office space to come on the market. In the Bay Area, Yahoo owns or leases 1.2 million square feet of office space, according to CoStar Portfolio Strategy.
Analysts expect the final round of bids for Yahoo’s core business to happen in July, so a sale could take place in the fall.
©2016 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
