Why Does Verizon Want to Buy Yahoo for $4.8 Billion? To Go Digital

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Verizon has finalized its $4.8 billion acquisition of Yahoo Inc, reports The Wall Street Journal. The company is apparently set to announce the deal on Monday morning (US time), finally ending months of speculation.

The acquisition includes Yahoo’s core internet business and real estate, marking a significant fall for Yahoo, once a Silicon Valley pioneer with market capitalization of more than $125 billion at the height of the dot-com boom. Now it will reportedly be bought for less than a fraction of that price.

For New York based Verizon, the deal adds another piece to the digital media and advertising business the company is trying to build. Verizon plans to keep the Yahoo brand.

And why does a mobile telecom provider want to buy the core editorial business of a faded Internet portal? The short answer is advertising. – Fortune

In a nutshell, Verizon is interested in buying Yahoo’s ad and content businesses for the same reason it acquired AOL last year for $4.4 billion. And that is to build the kind of scale that’s necessary to make money from digital advertising on mobile devices, as growth in the traditional telecom business slows.

“Verizon is trying to pivot its business from analog to digital,” analyst Craig Moffett of MoffettNathanson told the Wall Street Journal. “Verizon believes that a combined AOL/Yahoo would provide the digital advertising platform they need to execute their video reinvention strategy.”

Yahoo’s CEO, Marissa Mayer, is unlikely to have a prominent role under Verizon. She stands to make more than $50 million in compensation if terminated as a result of the acquisition.

Verizon has been a front-runner since the bidding of Yahoo began in April this  year, with a market capitalization of approximately $228 billion. Its digital media arm also includes AOL properties, in which Verizon acquired in 2015 for $4.4 billion.

AOL is another company that couldn’t bounce back after the dot-com crash.

Verizon’s initial competition came primarily from private-equity firms such as Bain Capital, Vista Equity Partners and TPG and Advent International Inc. The company is building a portfolio of online content and aiming to monetize it via advertising. Its current assets include Huffington Post and TechCrunch, which was acquired in the AOL deal. The acquisition of Yahoo will bring in millions more views from popular Yahoo sites such as Finance and Sports.

Google and Facebook will account for more than half of the $69 billion US digital ad market this year. Yahoo’s share is expected to be 3.4% and Verizon properties to hold a small 1.8% share of the market.

Yahoo will also need to decide on the fate of Yahoo Japan Corp, majority-owned by Softbank Group Corp. and Alibaba Group Holding Ltd, considered to make up the majority of Yahoo’s $36 billion market value today.

Update: Verizon’s $4.83 billion acquisition of Yahoo has been confirmed by Reuters.

A version of this appeared in The Wall Street Journal on July 24. Read the full version here.