For more than 20 years, AOL and Yahoo have been fending off rumors of a merger. Now Verizon has made the long-anticipated combination a reality. The telco giant’s $4.83 billion acquisition of Yahoo, announced July 25, brings together two 1990s-era internet sensations in the hopes that their combined clout will make a dent in the mobile advertising market share of the sector’s current darlings, Facebook and Google. The deal comes a little more than a year after Verizon plunked down $4.4 billion for AOL.
Think of the Yahoo purchase as doubling down on a risky but necessary bet. With the U.S. wireless phone market at saturation point, Verizon CEO Lowell McAdam needs to squeeze additional revenue out of an audience that is now 1 billion strong, thanks to the addition of Yahoo’s 600 million monthly mobile users.
While maximizing Verizon’s audience is a key component of the deal, data was also an important consideration. Yahoo will add momentum to Verizon’s already formidable ability to target audiences with the right marketing messages based on user behavior.
Now comes the hard part: integration. That task will be led by AOL CEO Tim Armstrong, who likely won’t be joined by Yahoo CEO Marissa Mayer. Though Mayer said she intends to stick around, industry observers predict she’ll be on to her next challenge once the sale gets regulatory approval and is finalized in the first quarter of next year.
The 8,800 employees Yahoo brings to Verizon are likely to see significant reductions in number given natural synergies; Mayer already slashed her work force by 20% over the past year to get her company ready for sale. But her work isn’t done: The acquisition of the core business leaves behind even more valuable assets, including equity investments in Alibaba Group Holding and Yahoo Japan, Yahoo’s convertible notes, certain minority investments, and Yahoo’s non-core patents. Yahoo says it plans to return “substantially all of its net cash” to shareholders in the future, which is no doubt a relief to the company’s long-suffering investors.