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Yahoo’s planned name change hangs on hopes Verizon won’t back out of deal

Sean Gallagher
Yahoo's deal with Verizon seems to be going 2x slower after security revelations.
Yesterday, Yahoo revealed in a filing with the Securities and Exchange Commission that the company would change its name (to "Altaba") after it completes its transformation from an actual business to a corporate wrapper around Alibaba stock. If all goes as planned, CEO Marissa Mayer would step down, the board would be trimmed, and "Altaba" would simply continue to exist as a way for investors to own a chunk of a non-controlling interest in a Chinese e-commerce company.
Whether that transformation happens as the result of a successful sale of the Yahoo Internet portal to Verizon or some other, less-desirable outcome has yet to be determined. And as we noted in our 2017 Deathwatch, it's still far from a sure bet that the Verizon acquisition will go as planned.
The change to "Altaba" (apparently some non-trademark-infringing sort of reference to Alibaba, in which Yahoo holds a 15 percent stake) depends on the completion of the sale to Verizon of Yahoo Holdings, the new corporate wrapper for its Internet business. Verizon initially offered $4.8 billion for Yahoo last July, but the deal was in doubt after it was revealed that Yahoo had failed to disclose a huge security breach in 2014 to customers (and Verizon). A second major breach, dating to 2013, was discovered later.
Between the two breaches—one of at least 500 million accounts and another of over a billion—more accounts were breached than access Yahoo monthly. So it's likely that a majority of active customers were affected by the breaches in some way. The security issues and their potential backlash are a concern for Verizon going forward—the value of Yahoo to Verizon is based largely on the brand's ability to still draw eyeballs.
Verizon’s plan for the Yahoo brand isn't completely clear, other than that it would be somehow aligned or merged with AOL—which Verizon acquired for $4.4 billion in 2015 and is still in the process of assimilating. But Verizon's strongest interest is apparently in Yahoo's mobile advertising platform. Yahoo has 600 million mobile users who connect to the service at least monthly, and while Yahoo's overall ad revenue has been slipping consistently (and precipitously) over the past three years, its mobile ad revenue has been growing—even as its share of the overall mobile advertising market has fallen relative to Google and Facebook.
Odds are that Verizon will still swallow Yahoo, considering how its acquisition of AOL has paid off so far. AOL's ad revenues last year offset much of the losses from Verizon's other corporate operations. The addition of Yahoo, and the conversion of Yahoo's mobile advertising platform to a more open service (the approach Verizon has taken with AOL, which now serves up ads for some Microsoft sites), could help Verizon stay ahead of bleeding in other parts of its business.
There's also the chance that Verizon will find some sort of synergy with all the content created by Yahoo (and its Tumblr and Flickr services, as well as its fantasy sports offerings) to boost its mobile and FiOS network revenues.
But while Verizon will get Yahoo as a turnkey business, it won't own any of Yahoo's more tangible intellectual property—none of Yahoo's more than 3,000 patents are included in the deal. Instead, Yahoo wrapped them up within another corporate entity called Excalibur LLC. Verizon will get a license to the patents with the sale, but additional licensing revenue will go to Excalibur.
Previously valued by some between $1 billion and $4 billion on its own, the patent portfolio has drawn few bidders, so the company that wants to be known as Altaba may end up keeping the patent portfolio as part of its pile of assets. [Update 5:51 pm: A Yahoo spokesperson noted that as per the latest version of the prospectus for the sale of Yahoo's business, Excalibur would be "moving forward" with Altaba, but may be sold at some future date.]
Given that Yahoo's management is not in a position to go look for a better offer—Yahoo would have to pay Verizon a $145 million "termination fee" to walk away from the table and find another suitor, and there isn't exactly a long line of people looking to make a better offer—it may end up having to settle for whatever Verizon decides on as a purchase price at this point or wait for Verizon to walk away from the deal. Verizon has already reportedly knocked $1 billion off its offer after the first security breach revelation. Given the most recent numbers from Yahoo's operations, that offer may drop further.
Still, the most likely scenario is that Verizon acquires Yahoo and promptly moves to fold its operations into AOL. There will likely be further culling of Yahoo staff as consolidations are made, and more Yahooligans will be released into the wild to fend for themselves. That $44.6 billion acquisition offer by Microsoft that Yahoo rejected in 2008 will continue to hang over the wreckage that remains.
Yahoo’s planned name change hangs on hopes Verizon won’t back out of deal Reviewed by Chidinma C Amadi on 2:46 AM Rating: 5

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