What Verizon, Yahoo Shareholders, Users Get From $4.83B Deal

We look at what Verizon and Yahoo shareholders will get from the deal and how it will affect users, some of whom have been loyal Yahoo users for two decades.

In its $4.83 billion deal with Yahoo, Verizon gets quite a bit. The company will be able to add all of Yahoo’s core assets, including its popular media brands, Tumblr, Yahoo Finance and search. More importantly, it also gets all of Yahoo’s advertising technology, including Brightroll and Gemini.

The nearly $5 billion deal doesn’t include what are arguably Yahoo’s most important assets: ownership in Yahoo Japan and Alibaba. In fact, the companies say that after the deal closes, a new firm will be formed that will hold stakes in Alibaba and Yahoo Japan, now worth much more than $30 billion. It’s unclear what Yahoo will do with these assets as shareholders await opportunities to cash in.

Verizon says that it plans to merge its Yahoo properties with AOL. Marni Walden, executive vice president and president of the Product Innovation and New Businesses division at Verizon, will lead the combined firm. Walden’s charge will be to combine the two companies’ assets, find “synergies” wherever possible and ultimately build out a more profitable advertising business, according to the companies.

Many are wondering why Verizon, a broadband telecommunications and cellular network company, would have so much interest in Internet media companies. According to its CEO Lowell McAdam, Verizon has been engaging in a strategy since it acquired AOL a year ago to connect “consumers, creators and advertisers.” Most importantly, he wants to create another revenue stream for Verizon outside communications. With AOL and Yahoo, Verizon can serve content to devices and sell advertising across its network, all while providing communications services to more than 100 million people around the United States and abroad.

Content appears to be another important factor to Verizon. While advertising ultimately drives the revenue, Verizon was quick to note that at AOL it kept popular brands, including the Huffington Post, so it could drive more users to its services. It plans to do the same at Yahoo, which according to the company, has 1 billion monthly active users across all its services, including Tumblr. Content ultimately drives advertising revenue, and Verizon knows it.

Yahoo shareholders might not be getting much for the assets the company just sold, but it’s actually what some of its biggest shareholders wanted. Those shareholders, including private equity firm Starboard Value, have said that Yahoo’s core business was practically worthless in terms of its earnings potential and growth prospects. Furthermore, Yahoo needed to find a way to unlock the value in Alibaba and Yahoo Japan holdings. By selling off the core business to Verizon, Yahoo is now free to do that and potentially reap the billions in cash it has locked up in its ownership of Yahoo Japan and Alibaba.

While Yahoo CEO Marissa Mayer says she wants to see the acquisition through, it appears likely that Verizon will fire her once the deal is closed. Verizon, after all, has said she won’t head Yahoo once it’s folded into Verizon’s business, and Yahoo’s most outspoken board members are not all that fond of her. Look for Mayer to make use of her golden parachute soon after the deal is fully closed.

Oddly, Mozilla’s Firefox browser plays into this equation. According to several reports, when Yahoo inked its deal with Mozilla to become the default search engine on Firefox, the companies included a clause that would allow Mozilla to back out if Yahoo was sold. Once Yahoo is officially sold, Mozilla reserves the right to walk away from Verizon and still get about $1 billion over the next three years. If Mozilla opts to stay with Verizon, it’ll get $375 million per year for as long as their contract lasts.

While neither Verizon nor Yahoo has said what its plans are for current employees, their prospects are insecure to say the least. AOL’s Tim Armstrong, who helped make the deal with Yahoo, said that he sees several “synergies” between the companies that could benefit Verizon. In corporate speak, synergies can often mean layoffs. Expect some serious Yahoo layoffs and other cost-cutting measures as Verizon integrates the Yahoo properties into AOL.

With Yahoo under its roof, Verizon could become a much stronger competitor to the likes of Google, Facebook and other major Internet advertisers. Verizon will have well over a billion people hitting its sites each day the company will offer the combined advertising platforms of AOL and Yahoo. It will be able to offer those content and advertising platforms to what is effectively a captive audience of users on its wireless networks. Combine that with Yahoo Mail and some of its content talent, and the company could become a much stronger force in the Internet and mobile advertising worlds.