Yahoo's Got a Plan, But Does Verizon?

SMITH BRAIN TRUST – The fate of Verizon's $4.83 billion offer for long-struggling Yahoo has been murky since a pair of massive breaches was revealed last year. Monday's regulatory filing establishing a new holding company doesn't clarify matters much. What we do know is that if the deal closes, Yahoo has a plan and a name for the $30 billion in assets that are left behind. 

Those assets, including Yahoo's 15 percent stake in Chinese e-commerce giant Alibaba and its 35 percent stake in Yahoo Japan, would be called Altaba, according to Yahoo's filing with the Securities and Exchange Commission. Yahoo CEO Marissa Mayer plans to step down from the board of directors for the future Altaba. Yahoo chairman Maynard Webb and Yahoo cofounder David Filo and three others will step down as well. As an investment company, Altaba – the name is said to be a portmanteau of "alternate" and "Alibaba" – won't need a big board.  

Meanwhile, Yahoo, with its popular email, sports and financial news services, likely will continue being called Yahoo after being swallowed by Verizon Communications. Mayer has said she will lead it through its transition, joining Yahoo with AOL as a mobile and online brand under the telecommunications giant.  

That's assuming that the large-scale hacks revealed last year don't quash or alter the deal. Yahoo announced in September that "state-sponsored" hackers had breached its system in 2014 and gained access to personal data from more than 500 million accounts. In December, it revealed that another hacker had obtained personal data from 1 billion users, the largest known data breach ever. The news sparked reports that Verizon might reconsider the deal and its $4.83 billion price tag. Some reports at the time suggested that Verizon would seek a $1 billion discount.

With its SEC filing this week, Yahoo is signalling to Verizon that it is "ready to move to the next step," says P.K. Kannan, the Ralph J. Tyser Professor of Marketing Science at the University of Maryland Robert H. Smith School of Business.

"The question is whether there will be some material loss associated with these hackings, and whether that is going to open Verizon to some kind of liability," he says. "This is a big issue."

And it's clearly on Yahoo's mind. In its SEC filing, the company states that in the wake of the hacks, Verizon could seek to walk away from the deal or renegotiate its terms. "That $4.8 billion that they came up with, it's not very clear at this point whether they overpaid," Kannan says. "But now Verizon will use this hacking as leverage to bring down the price."

For its part, Yahoo, or Altaba, is unlikely to delay negotiations to shed its core business. "They don't want to hold onto it if it does have risk in it," Kannan says.

Content-seeking Verizon was lured to buy Yahoo for its internet services as well as its advertising and sales. Yahoo mail is the second-largest email provider, trailing only Google's Gmail. Yahoo Sports, Yahoo Finance and Yahoo News are among the most-visited services in those categories.

Despite those premier assets, Yahoo struggled for years. Mayer was the company's seventh CEO, tasked with a turnaround that proved elusive.

"Yahoo, as compared to Google, did not have a singular focus," Kannan says. "Google had a focus on search, and they really minted that. Yahoo was doing a lot of things – search, email, content, content marketing – and nothing that could be called the best in the class."

Under Mayer, Yahoo made a $1-billion acquisition of Tumblr that was widely blasted as a failure. It hired expensive talent, namely Katie Couric, and did little to spotlight her.

"They were not able to get a foothold on anything that was substantive in order to grow the company," Kannan says. "So they kept losing value." 

AOL CEO Tim Armstrong told CNBC last week that he expected the Yahoo-Verizon deal to go through. Verizon bought AOL in 2015.

However, a Verizon senior executive, also speaking last week, said the company was unsure about the acquisition. Marni Walden, president of product innovation and new businesses at Verizon, told Reuters last week, "I can't sit here today and say with confidence one way or another because we still don't know."