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Verizon is Still Interested in Yahoo... But Why?

Written By Monica Savaglia

Posted February 27, 2017

The quest to build a digital media business that will directly compete with Facebook (NASDAQ: FB) and Alphabet’s Google (NASDAQ: GOOG) is still very much on Verizon’s agenda.

This past July, Verizon announced that it would be placing a bid for Yahoo… and it seemed like it was on its way to being a smooth merger up until two months later (September), when Yahoo came out to say that in 2014, it experienced a severe hack that had compromised 500 million user accounts.

Needless to say, Verizon (NYSE: VZ) wasn’t too happy about this news, and neither were Yahoo’s shareholders… or the 500 million Yahoo users.

But things got even worse for Yahoo. In December, Yahoo announced that there was another data breach in 2013 that exposed more than 1 billion user accounts, which affected user data such as names, email addresses, dates of birth, telephone numbers, and encrypted passwords.

These two data breaches are being declared some of the biggest attacks in Internet history. Verizon had a lot to contemplate.

One of the biggest appeals of Yahoo was its huge user base, and if that was compromised, was the deal really worth it?

Not to mention, this put a lot of doubt on whether Yahoo could really be trusted — who knows what else it could be holding back?

What Yahoo Has to Offer

Yahoo’s biggest appeal to Verizon includes bringing the company more than 1 billion users and data that Verizon plans to use in order to offer stronger and more effective advertising, in addition to Yahoo’s popular websites that specialize in sports, finance, entertainment, and news.

In 2015, Verizon bought AOL for $4.4 billion for its advertising technology in hopes of expanding its business into more than just a wireless carrier.

Merging Yahoo’s platform and user base with the technology portfolio that came from Verizon’s acquisition of AOL will without a doubt bring a broader business reach for Verizon, allowing for a more targeted advertising capacity.

This merger would take Verizon’s business plans a step further into the global digital advertising realm and allow the company to compete with current “big shots” like Google and Facebook.

According to eMarketer, in 2016, Yahoo and AOL combined had control over 2% of global digital advertising revenue compared to Google’s 32% and Facebook’s 13%.

While as separate businesses, only controlling 2% in combined global digital advertising revenue doesn’t seem like much, once these companies merge, they’ll be able to connect both businesses and establish united advertising goals and agendas that would spike that percentage — putting Verizon on the path to taking over some of that global revenue from Google and Facebook.

The Appeal is Still There, But Here’s the Deal…

Despite the hacks, Verizon is still interested in Yahoo. But it has since revised the offer to ensure that what it will be getting from Yahoo will be beneficial and it won’t be investing in a “bad seed.”

Verizon and Yahoo have agreed on cutting the original $4.8 billion purchase price by $350 million — costing shareholders $0.37 a share.

The Securities and Exchange Commission (SEC) is currently investigating to what extent Yahoo knew about the data breaches and whether it properly informed investors of the breaches.

Both companies have also agreed that they’d equally share any liabilities resulting from non-SEC related investigations and other third-party litigation associated with the data breach.

However, Altaba, the entity selling Yahoo, will retain liability for the SEC investigations and any shareholder lawsuits related to the deal itself.

Verizon’s general counsel, Craig Silliman, summed it up by saying:

Altaba will take 50% liability from any future lawsuits to the hacks from the state attorneys general, the Federal Trade Commission or international regulator — it’ll also take 50% liability for lawsuits stemming from Yahoo’s users or commercial partners.

Some analysts believe that Verizon should have cut the price even further since Yahoo’s greatest asset, its data, was severely compromised… that it’s essentially dealing with damaged goods from Yahoo and could have taken the discount even further, and Yahoo would have accepted the offer just as well. 

Roger Entner, an analyst for Recon Analytics, had this to say about the new Yahoo-Verizon deal:

The $350 million is still cheap… This is still the company responsible for two of the worst, if not the worst hacks in U.S. history.

As of right now, Verizon believes Yahoo would still be a great asset to its business plans of becoming a larger digital media and advertising company, and if all goes well, we could see a finalized deal by this July.

Until next time,

Monica Savaglia
Wealth Daily