What company did Yahoo merge with?

In 2017, Yahoo merged with Verizon Communications Inc., becoming a wholly owned subsidiary of Verizon. The $4.48 billion acquisition deal, announced in July 2016, marked the end of Yahoo’s run as an independent company after 21 years.

Yahoo was founded in 1994 by Jerry Yang and David Filo as “Jerry and David’s Guide to the World Wide Web”. It started off as a web directory to help people navigate the nascent internet. Over the years, Yahoo expanded into a web services provider offering search, email, news, finance and other products to hundreds of millions of users.

In the early 2000s, Yahoo was the most popular website in the United States. However, with the rise of giants like Google and Facebook, Yahoo steadily lost ground and relevance. By the mid 2010s, Yahoo was struggling with falling revenue, leadership turmoil, layoffs and competition from newer, nimbler startups.

To turn itself around, Yahoo began shopping itself to potential buyers. After months of negotiations, telecom giant Verizon emerged as the winning bidder for Yahoo’s core internet business in 2016. The $4.48 billion deal closed in June 2017, with Yahoo becoming part of Verizon’s Oath subsidiary (later renamed Verizon Media).

History of Yahoo

Yahoo was started in 1994 by electrical engineering graduate students Jerry Yang and David Filo while they were at Stanford University. Yang and Filo created a guide to other websites on the internet which they originally called “Jerry and David’s Guide to the World Wide Web”. The site organized websites into categories and became popular with early web users.

The site was soon renamed Yahoo! and incorporated in March 1995. The exclamation point in the name was meant to emphasize the excitement of the internet. Yahoo grew quickly, raising millions in capital from venture capitalists like Sequoia Capital and Softbank. It also began partnerships with major brands like Visa, MasterCard and CBS for content and services.

In 1996, Yahoo became the first web company to go public, further cementing its status as the dotcom poster child. The IPO raised over $33 million and turned Yang and Filo into overnight millionaires.

Flush with cash and high on its meteoric growth, Yahoo expanded into new internet services and products. Some key expansions included:

• Launched Yahoo Mail in 1997
• Acquired online bookseller GeoCities for $3.57 billion in stock in 1999
• Launched Yahoo Messenger instant messaging service in 1998
• Acquired photo-sharing site Flickr in 2005
• Launched Yahoo Finance portal in 1997
• Acquired Delicious bookmarking service in 2005

By 1999, Yahoo was the most popular website in the United States surpassing old stalwarts like AOL. The dotcom boom fueled Yahoo’s rise, pushing its stock price to astronomical heights. At its peak in 2000, Yahoo was valued at over $125 billion despite having less than $1 billion in revenue.

Dotcom Bust and Fall from Grace

Yahoo’s stratospheric valuation crashed back to earth with the dotcom bust in early 2000s. As investors lost faith in pie-in-the-sky internet companies, Yahoo lost nearly 80% of its value in a matter of months. Layoffs and cost cutting became the norm at Yahoo for the next few years.

As Yahoo focused on recovery, new internet companies gained ground. Google leveraged its superior search technology to become the preferred search engine. Social networking giant Facebook also chipped away at Yahoo’s dominance by absorbing users and advertising dollars.Soon, Yahoo was struggling to justify its continued existence to Wall Street.

Yahoo tried to change its fortunes by expanding into new products and prioritizing mobile apps. Some efforts like the photo-sharing site Flickr yielded mixed results. Other products like Yahoo Go were shut down within months due to lack of interest.

Yahoo also went through 6 different CEOs between 2007 to 2016 indicating a lack of leadership and strategic direction:

• Terry Semel (2001 – 2007)
• Jerry Yang (2007 – 2009)
• Carol Bartz (2009 – 2011)
• Tim Morse (Interim CEO) (2011 – 2012)
• Scott Thompson (2012 – 2012)
• Marissa Mayer (2012 – 2017)

In the meantime, Yahoo’s core internet business continued to decline. By 2016, Yahoo was losing ground rapidly in display advertising and search revenue. Verizon emerged as a potential savior that could buy Yahoo’s business and integrate it with AOL which it had purchased in 2015.

Yahoo – Verizon Deal

In February 2008, Microsoft made an unsolicited bid to acquire Yahoo for $44.6 billion. Yahoo rejected the offer initially but later reconsidered as its fortunes declined. The deal however fell through in May 2008 and Yahoo continued as an independent entity.

Over the next few years, Yahoo’s business deteriorated further making it a prime acquisition target. In December 2015, Yahoo started restructuring to make itself more attractive to buyers. This included the spinoff of Yahoo’s 15% stake in Chinese e-commerce company Alibaba into a separate holding company.

In February 2016, Yahoo announced it was considering strategic alternatives including selling its core internet business. Multiple companies including Verizon, AT&T, Quicken Loans, Advent International and TPG Capital put in preliminary bids for Yahoo’s core business over the next few months.

After months of negotiations, Yahoo announced in July 2016 that it had agreed to sell its core business to Verizon for $4.8 billion in cash. The deal excluded Yahoo’s valuable stakes in Alibaba and Yahoo Japan as well as patents and real estate. Yahoo was to change its name to Altaba after the sale.

In February 2017, Yahoo announced a slight deal modification to split up the acquisition. Verizon would pay $4.48 billion for Yahoo core internet business while Yahoo would retain a 15% stake in Chinese e-commerce giant Alibaba.

The deal successfully closed on June 13, 2017 with Yahoo becoming part of Verizon’s Oath subsidiary (later renamed Verizon Media). Marissa Mayer resigned as CEO with Yahoo Co-founder David Filo also leaving the company’s board.

Reasons for the Yahoo – Verizon Deal

Here are some of the key reasons why Yahoo agreed to sell its core business to Verizon:

Declining Business and Lack of Strategic Direction

Yahoo’s core products like search, mail and advertising services were losing ground to competitors. Despite multiple turnaround efforts, the company could not rediscover growth under the leadership of several CEOs. The management lacked vision to thrive as an independent entity.

Attractive Media Assets

Though declining, Yahoo still had an engaged visitor base of over 1 billion monthly active users. It was ranked as the third biggest website in the U.S. after Google and Facebook. Yahoo Finance, Sports and News continued to have high user traffic and engagement.

Verizon was keen to acquire these unique media assets as part of its strategy to build an online media and advertising business. Integrating Yahoo with AOL could give Verizon the scale to compete with Google and Facebook.

Unlocking Shareholder Value

Yahoo shareholders had stuck by the company through years of poor performance, leadership changes and missed opportunities. The Verizon deal finally allowed Yahoo to unlock value for long suffering investors.

Verizon offered a respectable $35 per share for Yahoo’s core business. The deal delivered a premium of over 50% compared to Yahoo’s share price before deal talks started.

Increased Financial Flexibility

The deal with Verizon freed up Yahoo to explore other opportunities to maximize value. Yahoo retained stakes in Alibaba and Yahoo Japan worth nearly $40 billion that could be monetized. Cash from the sale could be used to acquire new emerging businesses or be returned to shareholders.

Post sale, a streamlined Yahoo could remake itself with fresh leadership and strategic priorities as a holding company called Altaba.

Benefits for Verizon

Verizon had a few clear motivations to acquire Yahoo’s core internet business:

Grow Media and Advertising

Verizon had entered the digital media space in 2015 by acquiring AOL for $4.4 billion. The addition of Yahoo’s popular online media brands provided greater scale and reach to compete with Google and Facebook for advertising dollars.

Expand Content Offering

Yahoo provided Verizon with recognizable internet brands like Yahoo Sports, Finance, News, Mail and Tumblr. Verizon could leverage these content properties to drive user engagement across its network of media sites.

Data on 1+ Billion Monthly Active Users

The acquisition gave Verizon an enormous user base and associated data to power targeted advertising products. Data analytics was expected to be a key focus area for Verizon going forward.

Mobile Video and Content Platform

Verizon wanted to be more than a connectivity pipe for distributing other companies’ content and apps. With properties like Yahoo Mail and Tumblr, Verizon got access to popular mobile video and content that could be monetized.

Talent and Technology

Despite Yahoo’s business struggles, it had many talented technology employees working in areas like mobile, video, native ads and media platforms. Verizon gained an experienced workforce and next-gen technology platforms to support its digital media vision.

Post Acquisition Developments

The integration of Yahoo into Verizon led to several changes in the months following the acquisition:

• In April 2018, Verizon merged Yahoo with AOL under a new subsidiary called Oath led by former AOL CEO Tim Armstrong.
• In June 2018, Verizon laid off 10% of employees under Oath including 1,100 at Yahoo/AOL citing redundancy.
• In January 2019, Verizon wrote down the value of the acquisition by $4.6 billion acknowledging the media business was underperforming.
• In May 2019, Verizon announced that Yahoo privacy breaches from 2013 to 2016 exposed data from over 3 billion accounts.
• In September 2021, Verizon announced it was selling Verizon Media which included Yahoo and AOL to private equity firm Apollo Global for $5 billion.
• In October 2021, Oath was renamed to Verizon Media Group.
• In September 2022, Apollo completed the acquisition of Verizon Media and merged it with Yahoo under CEO Jim Lanzone.

Conclusion

The acquisition of Yahoo’s core business marked the end of Yahoo’s storied run as an independent internet company. Despite its current diminished status, Yahoo played an instrumental role in the first decade of the internet revolution.

For Verizon, buying Yahoo was part of a failed gamble to take on Google and Facebook in digital media and advertising. Five years after the acquisition, Verizon sold off Yahoo acknowledging it could not extract the value it had hoped from the faded internet pioneer.

The deal provides a cautionary tale on legacy tech companies trying to stay relevant in a rapidly evolving digital landscape. However, Yahoo’s spirit of innovation and community lives on through various products and services used by millions worldwide.