This is a Big Deal for VZ Stock
It’s been a while since Yahoo! Inc. (NASDAQ:YHOO) decided to put its core Internet assets up for sale. Since last year, Verizon Communications Inc. (NYSE:VZ) has been known as a strong contender in the YHOO stock auction. Now, it looks like a deal has been struck.
On Monday, July 25, Verizon announced that it would acquire Yahoo’s operating business for approximately $4.83 billion in cash. Yahoo will be integrated with Verizon’s AOL unit. (Source: “Verizon to Acquire Yahoo’s Operating Business,” Verizon Communications Inc., July 25, 2016.)
The deal is expected to close in the first quarter of 2017. After the acquisition, Yahoo will be left with a 15% stake in Alibaba Group Holding Ltd (NYSE:BABA) and a 35.5% stake in Yahoo! Japan Corp.
Owners of VZ stock weren’t too impressed. By around 10:30 a.m., though, YHOO stock had declined by more than two percent, while VZ stock slipped 0.37%. But could the VZ stock traders be wrong?
Verizon Stock: Expanding Userbase from Millions to Billions
No doubt, this is a big deal for VZ stock. The acquisition should help the telecom company become a giant player in the media industry.
“Yahoo gives us scale and that’s what’s most critical here. We go from being in the millions of audience to the billions,” said Marni Walden, VZ stock president of product innovation and new businesses. “We want to compete and that’s the place that we need to be, so we’re very pleased with where we are today.” (Source: “Verizon to Acquire Yahoo in 44.8 Billion Deal,” CNBC, July 25, 2016.)
This is not Verizon’s first move into digital media. Last year, the company spent $4.4 billion buying AOL Inc. (Source: “Verizon Completes Acquisition of AOL,” AOL Inc, June 23, 2015.)
While AOL gave Verizon millions of users and online advertising technology, Yahoo is on a totally different scale. There are more than one billion people using Yahoo’s search, communications, and digital content products every month. Moreover, 600 million of them are monthly active mobile users. Good news for VZ stock.
What will this mean for Verizon and VZ stock? Adding Yahoo to Verizon’s AOL unit will create a portfolio of more than 25 brands with extensive distribution capabilities. According to AOL’s chief executive officer, Tim Armstrong, “The strategy behind the deal is to really go after mobile and video and a lot of the global services—the services that AOL has and Yahoo has—at scale.” (Source: CNBC, op cit.)
VZ Stock: The Winner of an Intense Bidding War
Note that Verizon was not the only bidder for Yahoo’s core Internet assets. It was reported last month that Yahoo has received multiple offers. Among the bidders were Verizon, AT&T Inc. (NYSE:T), Quicken Loans Inc., and some private equity firms. (Source: “Yahoo Has Received Multiple Bids at or Above $5 Billion for Core Business,” CNBC, June 9, 2016.)
I always thought that Verizon had the best shot at Yahoo’s Internet business. The company was very clear with its intentions. Verizon identified Yahoo as a potential acquisition target as early as December of last year. Verizon’s chief financial officer, Fran Shammon, said that the company would explore a deal with Yahoo if “there is a strategic fit and it makes sense for our shareholders and we can return value.” (Source: “Verizon would Explore Yahoo Deal If It Made Sense, CFO Says,” Bloomberg, December 7, 2015.)
Also, Verizon had the best person to lead the discussion—Tim Armstrong. Armstrong has a solid track record as a deal maker. He was instrumental in AOL’s acquisitions of The Huffington Post and TechCrunch. More recently, Armstrong led Verizon’s $250 million acquisition of advertising specialist Millennial Media Inc. Lastly, Armstrong and Yahoo CEO Marissa Mayer both worked at Alphabet Inc (NASDAQ:GOOG) before moving to their current companies. The two had known each other for years.
The Bottom Line on VZ Stock
What does it mean for VZ stock investors? Well, the company did not say when and how much the deal would be accretive to its earnings. But acquiring Yahoo certainly opens up huge monetizing opportunities for the telecom giant. Instead of just charging customers for its wireless service, Verizon will also be charging advertisers for access to its soon-to-be more than one billion monthly active users.
That could be a big win for VZ stock.