Verizon to buy Yahoo! for $5 billion

Verizon to buy Yahoo! for $5 billion

Reuters announced today Verizon Communications has agreed to buy Yahoo for $5 billion.

Reuters news agency announced today that Verizon Communications has agreed to buy Yahoo for $5 billion.

The announcement will come before the start of New York trading hours today, a Reuters source claimed. Bloomberg initially reported that the deal would be announced today for $4.8 bn.

The transaction seems logical as it will complement Verizon's AOL internet business, which the company acquired last year for $4.4bn, by giving it access to Yahoo's advertising technology, as well as other assets such as search, mail, messenger and real estate.

This would be the end of Yahoo as an operating company, leaving it as the owner of a 35.5% stake in Yahoo Japan, and a 15% interest in Chinese e-commerce company Alibaba Group. Yahoo has struggled to gain traction and recent results have been particularly disappointing.

Last week the firm reported a $440m loss in its second quarter, but said the board had made ‘great progress on strategic alternatives’.

The Verizon price is well below the firm's $125bn market value of Yahoo at the height of the boom.

In December, Yahoo scrapped plans to spin off its Alibaba stake after investors fretted over whether that transaction could have been carried out on a tax-free basis. It instead decided to explore a sale of its core assets, spurred on by activist hedge fund Starboard Value LP.

John Colley, Professor of practice in the strategy & international business group, Warwick University, said: “Unfortunately 'Alliances of the Weak' in an attempt to make a single strong competitor very rarely work. They are usually left with a bigger 'weak' player.

"Yahoo has struggled against the strength of network effects for a long time despite the various promises of CEOs. It is difficult to see how this merger will change that and indeed how Verizon will benefit from this acquisition. This is a major diversification from mobile telecommunications and it is not clear what benefits may arise from owning both as they are such different businesses. The mobile telecoms industry is maturing and this acquisition appears to be more about finding future growth in unrelated diversification, always a high-risk path.

"The acquisition also appears to be motivated by AOL's CEO Tim Armstrong who is seen by some as more likely to be successful running Yahoo than its current CEO Marissa Mayer who has been under pressure from investors for failing to 'stop the rot' at Yahoo. It looks like Mayer will be passing that privilege to Armstrong who will certainly have his work cut out.

Colley maintains that not only will Armstrong have to turn around Yahoo but at the same time oversee the integration with AOL, a process which often results in loss of value to the business.

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