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Yahoo Sold to Verizon for $4.8 Billion

July 25, 2016 GMT

Ending a storied chapter in Silicon Valley history, Verizon is the apparent winning bidder for Yahoo, agreeing to pay $4.8 billion for the troubled internet company.

An official announcement is expected before the market opens Monday, according to multiple news outlets.

The sale of the core internet business and some real estate caps five months of speculation about the fate of the once-mighty tech icon and highlights the dramatic fall of a company that had a market capitalization of more than $125 billion during the dot com boom.

It also marks the end of Yahoo CEO Marissa Mayer’s unsuccessful efforts to turn around the company. If Mayer is not retained by Yahoo’s buyer, she would receive a $55 million golden parachute, according to an April filing from the Securities and Exchange Commission.

Under the sale’s reported terms, Yahoo will keep its stakes in Chinese e-commerce giant Alibaba and Yahoo Japan, worth a total of about $40 billion. Bloomberg first reported news of the sale.

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A Verizon spokesman declined to comment on the reported sale, and a Yahoo spokeswoman did not immediately respond to a request for comment.

For Verizon, the deal offers Yahoo’s billion monthly users, and content that can go along with that of digital media company AOL, which Verizon bought last year for $4.4 billion. SunTrust analyst Robert Peck earlier this year said if an internet and telecommunications company such as Verizon bought Yahoo, it could cut 40 percent of Yahoo’s workforce because of overlaps in management, administration and sales. Yahoo has already laid off at least 1,600 workers since announcing reductions in February.

Sunnyvale-based Yahoo put itself up for sale in February, a victim of missed opportunities, unproductive purchases and the unceasing innovation of its competitors, primarily Google and Facebook. While Yahoo was buying tech startups right and left, hiring an expensive news anchor, birthing then killing digital magazines, and jettisoning workers in a desperate bid to stay afloat, Google and Facebook were eating its lunch.

Central to the story of Yahoo’s fall, of course, is Mayer, hired in 2012 -- the fourth CEO in four years -- to turn around a company still punch-drunk from the financial crisis of 2008. Mayer focused her strategy on acquisitions -- for product development and to secure proprietary technology and talent. Activist investor Eric Jackson of SpringOwl Asset Management would later label the purchases “misallocations.”

In 2013, Yahoo paid $1.1 billion for Tumblr, expecting $100 million in annual revenue from the blogging platform. In its most recent quarterly report, in July, Yahoo revealed it had written down the value of Tumblr by $482 million, after writing it down by $230 million in March.

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In 2014, Yahoo fell out of the Fortune 500 for the first time. Mayer admitted that year the company had only started investing in mobile in 2013 and was “late” and “behind.”

Incorporated in 1995 as a directory to the world wide web, Yahoo began selling ads, and went public the next year. By March 2000, it embodied the dot-com bubble: from January 1998′s $3 billion market capitalization, it had zoomed to more than $125 billion. Then the bubble popped, smacking Yahoo’s market cap down to around $5 billion by the fall of 2001.

Yahoo continued an up and down course. Its fortunes began to sweep steeply upward again in 2004, when the company hit $3.6 billion in revenue. Yahoo nearly doubled its head count, to more than 14,000 workers by 2007. Then came the financial crisis, and revenue began to slide.

In the meantime, Google replaced Yahoo as the go-to site for searching the web. By 2007, Google had cracked the 50 percent mark in share of all U.S. desktop searches, according to comScore, while Yahoo had 27 percent. From there, as Yahoo’s share slid downward, Google’s rose, hitting 67 percent in November 2014 to Yahoo’s 10 percent. Since then, Yahoo has rallied somewhat, according to comScore data, hosting about 12 percent of U.S. searches as of June, compared to Google’s 64 percent.

While Google was dominating search, Facebook was turning the world into a hugely popular version of a Yahoo chat room.

And while Yahoo’s revenue has hovered between $4.6 billion and $5 billion since 2008, Google saw its revenue skyrocket from $21.8 billion in 2008 to $75 billion last year, and this year topped $20 billion in the first quarter alone. Facebook, with $2 billion in revenue in 2010, hit $18 billion last year, and reported $5.4 billion in revenue in the first quarter of this year. Today, Google and Facebook rake in 64 percent of all U.S. digital advertising, according to Pivotal Research.

AfterYahoo fell out of the Fortune 500, activist-investors began agitating for change. First up was Jackson, who sent Yahoo a blistering 99-slide presentation attacking the firm for missing the boat on mobile, failing to roll out new products, and “misallocation” of nearly $10 billion since 2012, including $3 billion in mergers and acquisitions “valued by investors at zero.” Jackson wanted Mayer out.

Next up was Starboard Value, which expressed via an August letter its displeasure with Yahoo’s performance, and continued to issue complaints and demand the firm sell its core assets. In March, Starboard launched a proxy fight, and won, receiving four board seats in April.

Other companies that had actively bidded for Yahoo were AT&T and Quicken Loans Inc. founder Dan Gilbert, as well as firms Vector Capital Management and TPG, Bloomberg reported. Contact Ethan Baron at 408-920-5011 or follow him at Twitter.com/ethanbaron .