By Ryan Knutson and Dana Cimilluca
Verizon Communications Inc. is close to paying around $5 billion
to buy Yahoo Inc.'s core business, people familiar with the matter
said, absorbing a company that helped usher in the internet age but
surrendered most of the profits to later entrants like Google and
Facebook Inc.
Verizon, long considered the most likely buyer since Yahoo put
its search engine and web properties on the market, could reach a
deal to buy the company in the coming days, the people said.
Other bidders that had joined the auction of Yahoo could
re-emerge, and an agreement with Verizon isn't guaranteed, two of
the people cautioned.
"In order to maintain the integrity of the process, we won't be
commenting until an agreement is finalized," a Yahoo spokeswoman
said.
Shares of Yahoo rose 1.4% to $39.38 on Friday and have rallied
since the company said on Feb. 2 it was exploring strategic
options. Shares of Verizon gained 1.3% to $56.10. Bloomberg News
earlier reported that Verizon was likely to prevail in the
auction.
Verizon, with a market cap of about $228 billion, has the means
to purchase Yahoo's Web assets and a logical blueprint for folding
them into its fledgling digital media business, which includes AOL
properties it acquired last year for $4.4 billion. The talks cover
Yahoo's portal, search engine and properties like Yahoo Mail, Yahoo
Sports and the Tumblr blogging service that attract tens of
millions of visitors a month.
Verizon hopes video services and online advertising will become
its next growth engine. It plans to combine customer data from
smartphones with advertising inventory on AOL -- and possibly Yahoo
-- to create an online advertising technology platform that can
compete with Web giants such as Facebook and Alphabet Inc.'s
Google, analysts say.
The sale would cap a stunning fall for Marissa Mayer, who was
hailed as one of the most promising executives in Silicon Valley
when she was hired as Yahoo's CEO in July 2012. Under Ms. Mayer,
Yahoo has struggled to boost revenue despite spending some $2
billion to acquire more than 50 startups, including the $1.1
billion purchase of Tumblr. Yahoo since has written down more than
$600 million of Tumblr's value. ( Follow Yahoo's rapid rise and
long stock-market decline in this interactive timeline.)
The Sunnyvale, Calif. company's struggles put pressure on Yahoo
directors to unlock some of the value trapped in its Asian
investments. The bulk of Yahoo's roughly $37 billion market
capitalization comprises its stakes in Alibaba Group Holding Ltd.
and Yahoo Japan.
The board initially disclosed plans to spin off the Alibaba
stake, leaving Ms. Mayer to run a smaller company focused on its
Web search and internet properties. But the company switched course
after an investor revolt led by Starboard Value LP that ended this
spring with the activist investor taking nearly half of Yahoo's
board seats.
On Monday, Yahoo posted a deeper quarterly loss that underscores
the challenges facing its shrinking internet business. Its revenue,
minus commissions paid to partners for web traffic, fell 19% in the
second quarter -- the sixth decline in the past seven periods.
Under pressure from investors including Starboard, Yahoo moved
to trim costs to make itself more attractive to buyers. The company
cut its workforce this year by 15% to 8,800 employees at the end of
the second quarter, helping boost its cash by 13% this year to $7.7
billion.
The cutbacks are an about-face for Ms. Mayer, who from the
beginning stressed the need to invigorate the company by paying for
talent through acquisitions and sealing pricey Web content
deals.
Ms. Mayer made online video a centerpiece of her strategy. Last
year, for instance, she paid $20 million to stream a football game
between two National Football League teams, the Buffalo Bills and
Jacksonville Jaguars.
But Yahoo has had to curb those ambitions. It last year wrote
off $42 million in expenses for developing three video series,
including a revival of the popular "Community" show. In January,
Yahoo also shut online-video portal Screen after spending more than
$100 million to make its own shows, excluding the cost of the
employees involved.
Verizon plans to merge Yahoo's operations with its AOL
businesses. Whether Verizon retains the Yahoo brand remains an open
question. Verizon has been careful to keep AOL and other related
acquisitions at arm's-length to avoid upsetting the culture, and
there are no plans to scatter Yahoo assets throughout Verizon, one
of the people said.
In an earlier round of bidding, Verizon offered about $3 billion
for Yahoo's business and indicated it wasn't interested in
acquiring certain assets, such as patents and real estate. In its
latest bid, the carrier will likely only pay for the real estate
that directly houses Yahoo's current operations and pay for patents
that directly relate to its current services, one of the people
said.
Verizon's pursuit of Yahoo illustrates the degree to which the
former Baby Bell is seeking to transform itself. Landlines have
been in decline for years, and Verizon is pulling back on its wired
broadband business. It is focusing nearly all its energy on its
wireless business, which accounted for 70% of its 2015 annual
revenue.
But its wireless business is maturing, too. Verizon Wireless is
the nation's largest carrier by subscribers, with roughly 112
million. Most of those customers have already upgraded to more
expensive smartphones. Verizon is set to report its latest
quarterly results on Tuesday.
--Deepa Seetharaman contributed to this article.
Write to Ryan Knutson at ryan.knutson@wsj.com and Dana Cimilluca
at dana.cimilluca@wsj.com
(END) Dow Jones Newswires
July 23, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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