Verizon is planning to bid $3 billion for Yahoo’s core internet business, according to reports. Although company representatives refused to discuss the rumor, “a person familiar with the matter” said the communications company is expected to join TPG Capital in the second round of bidding. At this time, it is unclear whether Verizon and TPG will be joined by first-round bidders Advent International and Vista Equity Partners.
The anticipated bid was initially reported by The Wall Street Journal on Monday evening. According to the article, an unnamed source confirmed Verizon will submit a $3 billion bid for Yahoo’s web assets. However, according to the source, the offer could increase because Verizon “would be willing to pay more or less based on a few lingering questions about the deal.”
Although $3 billion is a hefty sum, it falls short of the numbers projected in April. As reported by Variety, Robinson Humphrey analyst Bob Peck fully expected the bids to top $6 billion.
“Based on the upside potential in these assets… we think the ultimate winning bids could come back above.”
Humphrey cited three of types of “underappreciated assets,” including Yahoo’s patent holdings, real estate, and royalty payments. He also estimated the company’s core advertising business is worth an estimated $1.5 billion.
However, the bidders, including Verizon, seem to be focused primarily on Yahoo’s web assets.
Verizon’s bid for Yahoo’s core internet business was not unexpected. In the same Variety article, the communications company was specifically listed as a potential bidder. However, their interest was not confirmed until the second round of the bidding process.
The April article suggested there were nearly 40 companies and private equity firms interested in Yahoo’s web assets, including Bain Capital, CBS, Daily Mail, and Time. However, the list was shortened to a handful of bidders during the first round.
It is unclear why interest in Yahoo apparently cooled in recent months. However, some sources are blaming lackluster advertising sales.
During a series of presentations, which took place at Yahoo headquarters in May, Chief Executive Marissa Mayer revealed the company’s steep decline in advertising sales. Although some companies, including Verizon, are in a position to remedy the issue, others may not have the interest or means to do so.
The Wall Street Journal suggests Verizon’s bid for Yahoo’s core internet makes sense because they are one of the very few companies that could effectively turn the company around.
“The telecom giant likely would combine Yahoo’s web properties, which together attract more than a billion users a month, with its growing business in online ads.”
CNet reports Yahoo’s decline in revenue has become a troubling issue in recent years. CEO Marissa Mayer recently suggested focusing on mobile services and websites. However, consumers and investors were not impressed.
— Los Angeles Times (@latimes) June 7, 2016
As Mayer was unable to reverse the decline, Yahoo began exploring the possibility of selling some of their holdings.
Although at least one more round of bidding is expected, it is unknown whether Verizon will increase their $3 billion bid for Yahoo’s core internet business.
The unnamed source said the final offer will hinge on various details, including whether Yahoo will cover severance packages for any employees who are displaced amid the sale. According to the source, the initial offer of $3 billion was made assuming Verizon would be responsible for covering severance packages.
— TechOptimals (@TechOptimals) June 7, 2016
Last year, Verizon acquired AOL for $4.4 billion. Fortune reports the communications company is specifically interested in purchasing companies like AOL and Yahoo, as they want to “expand beyond the telecom industry’s limitations.”
It is assumed that Verizon’s bid for Yahoo will help the company increase its own revenue by offering an entirely new set of services through platforms that have proven to be successful in the past.