(TNS) — Ending a storied chapter in Silicon Valley history, Verizon is the winning bidder for Yahoo's internet business, and will pay $4.83 billion for the core of the troubled company, the two firms confirmed Monday.
The deal will be finalized in the first quarter of 2017, pending approval from shareholders and regulators. Yahoo's stakes in Chinese commerce giant Alibaba and Yahoo Japan, worth about $40 billion combined, will remain with the Sunnyvale firm, which will be renamed as a registered investment company.
Yahoo CEO Marissa Mayer said in a conference call Monday she would stay on through the transition.
"Yahoo is a company that has changed the world, and will continue to do so through this combination with Verizon and AOL," Mayer said. "Yahoo and AOL popularized the internet, email, search and real-time media. It's poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile."
Mayer, if ultimately let go by Verizon, would reap a $55 million golden parachute, according to a Securities and Exchange Commission filing.
Verizon was not the highest bidder, Yahoo board member Tom McInerney said.
"Verizon's transaction was the one that was the best for shareholders," McInerney said.
Verizon will receive all of the Sunnyvale company's real estate holdings, Yahoo chief financial officer Ken Goldman said, but a collection of patents described by Yahoo as "non-core" will stay with Yahoo.
Officials with Verizon, which bought digital media company AOL last year for $4.4 billion, said the purchase of Yahoo will create a major new player in digital advertising, and boost ad revenue. "Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers," said AOL CEO Tim Armstrong.
The sale proceeds, minus money needed to operate Yahoo until the deal closes, plus $7.7 billion Yahoo has in cash, will be returned to shareholders, McInerney said.
The sale caps five months of speculation about the fate of the once-mighty tech icon and highlights the dramatic fall of a company that had a market capitalization of more than $125 billion during the dot com boom.
It also marks the end of Yahoo CEO Marissa Mayer's unsuccessful efforts to turn around the company.
For Verizon, the deal offers Yahoo's billion monthly users, and content that can go along with that of digital media company AOL. SunTrust analyst Robert Peck earlier this year said if an internet and telecommunications company such as Verizon bought Yahoo's core assets, it could cut 40 percent of Yahoo's workforce because of overlaps in management, administration and sales. Yahoo has already laid off at least 1,600 workers since announcing reductions in February.
Sunnyvale-based Yahoo put its internet business up for sale in February, a victim of missed opportunities, unproductive purchases and the unceasing innovation of its competitors, primarily Google and Facebook. While Yahoo was buying tech startups right and left, hiring an expensive news anchor, birthing then killing digital magazines, and jettisoning workers in a desperate bid to stay afloat, Google and Facebook were eating its lunch.
Central to the story of Yahoo's fall, of course, is Mayer, hired in 2012 -- the fourth CEO in four years -- to turn around a company still punch-drunk from the financial crisis of 2008. Mayer focused her strategy on acquisitions -- for product development and to secure proprietary technology and talent. Activist investor Eric Jackson of SpringOwl Asset Management would later label the purchases "misallocations."
In 2013, Yahoo paid $1.1 billion for Tumblr, expecting $100 million in annual revenue from the blogging platform. In its most recent quarterly report, in July, Yahoo revealed it had written down the value of Tumblr by $482 million, after writing it down by $230 million in March.
In 2014, Yahoo fell out of the Fortune 500 for the first time. Mayer admitted that year the company had only started investing in mobile in 2013 and was "late" and "behind."
Incorporated in 1995 as a directory to the world wide web, Yahoo began selling ads, and went public the next year. By March 2000, it embodied the dot-com bubble: from January 1998's $3 billion market capitalization, it had zoomed to more than $125 billion. Then the bubble popped, smacking Yahoo's market cap down to around $5 billion by the fall of 2001.
Yahoo continued an up and down course. Its fortunes began to sweep steeply upward again in 2004, when the company hit $3.6 billion in revenue. Yahoo nearly doubled its head count, to more than 14,000 workers by 2007. Then came the financial crisis, and revenue began to slide.
In the meantime, Google replaced Yahoo as the go-to site for searching the web. By 2007, Google had cracked the 50 percent mark in share of all U.S. desktop searches, according to comScore, while Yahoo had 27 percent. From there, as Yahoo's share slid downward, Google's rose, hitting 67 percent in November 2014 to Yahoo's 10 percent. Since then, Yahoo has rallied somewhat, according to comScore data, hosting about 12 percent of U.S. searches as of June, compared to Google's 64 percent.
While Google was dominating search, Facebook was turning the world into a hugely popular version of a Yahoo chat room.
And while Yahoo's revenue has hovered between $4.6 billion and $5 billion since 2008, Google saw its revenue skyrocket from $21.8 billion in 2008 to $75 billion last year, and this year topped $20 billion in the first quarter alone. Facebook, with $2 billion in revenue in 2010, hit $18 billion last year, and reported $5.4 billion in revenue in the first quarter of this year. Today, Google and Facebook rake in 64 percent of all U.S. digital advertising, according to Pivotal Research.
After Yahoo fell out of the Fortune 500, activist-investors began agitating for change. First up was Jackson, who sent Yahoo a blistering 99-slide presentation attacking the firm for missing the boat on mobile, failing to roll out new products, and "misallocation" of nearly $10 billion since 2012, including $3 billion in mergers and acquisitions "valued by investors at zero." Jackson wanted Mayer out.
Next up was Starboard Value, which expressed via an August letter its displeasure with Yahoo's performance, and continued to issue complaints and demand the firm sell its core assets. In March, Starboard launched a proxy fight and won, receiving four board seats in April.
Other companies that had actively bidded for Yahoo were AT&T and Quicken Loans Inc. founder Dan Gilbert, as well as firms Vector Capital Management and TPG, Bloomberg reported.
©2016 the Contra Costa Times (Walnut Creek, Calif.) Distributed by Tribune Content Agency, LLC.