Yahoo
From Invertopedia, the encyclopedia of how things fail
Yahoo was an early web portal once valued at more than $100 billion[1]. In February 2008 its board turned down a $44.6 billion bid from Microsoft as too low[2]. In 2009 it handed its search engine to Microsoft's Bing anyway[3], and in 2017 Verizon bought its core business for $4.48 billion, after knocking $350 million off the price over two huge data breaches[1][6].
Contents
The bet
Yahoo's board believed the company was worth more on its own. It said Microsoft's $31-a-share offer "substantially undervalues" its brand, its worldwide audience, its new advertising platforms and its growth prospects, even though the offer was a 62 percent premium to its stock price[2].
When Microsoft raised its offer to $33 a share, Yahoo held out for at least $4 a share more[7]. The bet was that a better deal, or a better future, was coming.
What happened
| Jan 31, 2008 | Microsoft CEO Steve Ballmer calls Yahoo with an offer at a 62 percent premium.[7] |
|---|---|
| Feb 11, 2008 | Yahoo's board unanimously rejects the $44.6 billion, $31-a-share bid as too low.[2] |
| May 3, 2008 | Microsoft withdraws. It had been willing to raise its offer to $33 a share; Yahoo wanted at least $4 a share more. Ballmer: "The economics demanded by Yahoo! do not make sense for us."[7] |
| Jul 29, 2009 | Yahoo signs a ten-year deal for Microsoft's Bing to power its search, keeping 88% of search revenue on its own sites at first.[3] |
| Jul 2012 | Marissa Mayer becomes CEO. She later buys Tumblr for $1.1 billion and BrightRoll for $640 million.[8] |
| Feb – Mar 2016 | Yahoo puts itself up for sale. Activist investor Starboard calls for the whole board to be replaced.[8] |
| Jul 25, 2016 | Verizon agrees to buy Yahoo's operating business for about $4.83 billion in cash. The Alibaba and Yahoo Japan stakes are left out.[4][8] |
| Sep – Dec 2016 | Yahoo discloses two breaches: one of more than 500 million accounts, then one of 1 billion.[6][9] |
| Feb 21, 2017 | Verizon cuts the price by $350 million, to $4.48 billion.[6][9] |
| Jun 13, 2017 | The sale closes. Mayer resigns, and Yahoo is folded with AOL into a Verizon unit called Oath.[1][5] |
The kill shot
Yahoo lost the market that mattered, search, and kept acting as if it hadn't. By the time it sold, the stakes it held in other companies were worth far more than the business itself.
Even in 2008, some investors said Yahoo had failed to keep pace with Google in search and online advertising[2]. Eighteen months after refusing Microsoft's money, Yahoo outsourced its search to Microsoft's Bing for ten years[3]. Google then held about 65% of the search market to Yahoo's 19.6%[3].
The Mayer years added mobile products and acquisitions, but TechCrunch reported they did not much improve profits[8]. When Verizon bought the operating business, Yahoo's 15% stake in Alibaba alone was worth $31.2 billion, more than six times the sale price[8].
Red flags ignored
- A premium called an insult. The board rejected a 62 percent premium as undervaluing the company.[2]
- Losing the core. Some investors already worried in 2008 that Yahoo had fallen behind Google in search.[2]
- Renting the engine. Within 18 months of saying no to Microsoft, Yahoo search ran on Microsoft's technology.[2][3]
- The parts beat the whole. The Alibaba and Yahoo Japan stakes were worth far more than the business Verizon bought.[6][8]
- Security found late. Breaches from 2013 and 2014 came to light only in 2016, after the sale was signed.[6]
The cost
Microsoft offered $44.6 billion in 2008[2]. Verizon paid $4.48 billion in 2017[1], after the $350 million breach discount[6]. Reuters reported that Verizon planned to cut about 2,000 jobs, or 15%, across its Yahoo and AOL units[1].
Yahoo also agreed to cover half of certain cash liabilities from breach-related government investigations and lawsuits, with shareholder suits staying with Yahoo's remaining company[9].
The inversion
Pick the one thing you will be best at and defend it. When a fair offer arrives for a business that is losing its core market, compare it with what the business is likely to be worth, not what it used to be worth.
What survived
The brand and the stakes, separately. Yahoo's search, communications and content products went to Verizon[4] and were combined with AOL under Oath, led by AOL CEO Tim Armstrong[1][5]. What Verizon did not buy was renamed Altaba, a holding company whose main assets were a 15.5% stake in Alibaba and a 35.5% holding in Yahoo Japan[1].
References
- ^ “Verizon closes US$4.48 billion Yahoo deal”. Reuters via TechPartner News, June 14, 2017. The $4.48 billion close, Yahoo once valued above $100 billion, Altaba and its stakes, Oath, and about 2,000 job cuts.
- ^ “Yahoo Rejects Microsoft Bid”. NPR, February 11, 2008. The $44.6 billion, $31-a-share bid, the 62 percent premium, the unanimous rejection, "substantially undervalues", and investor worry about falling behind Google.
- ^ “Microsoft Bing to Power Yahoo Search in 10-Year Deal Aimed at Google”. eWeek (Clint Boulton), July 29, 2009. The ten-year search deal, the 88% revenue share, and search shares (Google 65%, Yahoo 19.6%).
- ^ “Verizon to acquire Yahoo's operating business (press release, Exhibit 99.1 to Form 8-K)”. Yahoo filing with the SEC, July 25, 2016. The $4.83 billion price, what was sold and what was left out.
- ^ “Verizon closes $4.5B acquisition of Yahoo, Marissa Mayer resigns [Memo]”. TechCrunch (Ingrid Lunden), June 13, 2017. The close on June 13, 2017, Mayer's resignation and Oath under Tim Armstrong.
- ^ “Verizon will pay $350 million less for Yahoo”. New York Times via Honolulu Star-Advertiser, February 21, 2017. The $350 million cut to $4.48 billion, the 2013 and 2014 breaches disclosed in 2016 after the deal, and the stakes being worth more than the core.
- ^ “Microsoft Withdraws Proposal to Acquire Yahoo!”. Microsoft (letter from Steve Ballmer), May 3, 2008. The January 31 call, the raise to $33 a share, Yahoo's demand for at least $4 more, and the withdrawal quote.
- ^ “Verizon buys Yahoo for $4.83 billion”. TechCrunch (Romain Dillet), July 25, 2016. The Alibaba stake's $31.2 billion value, Mayer from July 2012, Tumblr and BrightRoll, the February 2016 sale process, Starboard, and profits.
- ^ “Verizon cuts $350 million off Yahoo acquisition deal following breaches”. MobileSyrup (Jessica Vomiero), February 21, 2017. The September and December 2016 disclosures, the new price and the liability split.