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April 4, 2017

Even with a name like Oath, Verizon’s acquisition of Yahoo still makes sense

By GlobalData Technology

Despite the rocky road so far — and a peculiar name choice — the now $4.48bn deal between Verizon and Yahoo is still the best opportunity for the telecoms giant to strengthen its proposition in the digital media and advertising space currently dominated by Google and Facebook.

If not for Yahoo, Verizon would have to look for other players in the digital media space, and there aren’t many to look for.

It could have, of course, looked to acquire Twitter or Pandora Media, but neither of these boast of the kind of ad revenue and user base that Yahoo offers with such a deal value.

With over 1bn users, Yahoo will provide Verizon with the scale it needs to build a worldwide digital advertising business.

Verizon will be merging parts of Yahoo it acquired last year — Yahoo’s search, mail, content, and ad-tech businesses — with its AOL businesses, ending months of speculation and closing the acquisition on a much needed positive note.

From the time Verizon announced its acquisition of Yahoo in July 2016, the deal has run into a string of problems.

While Yahoo had to compromise on price (in the end a fraction of the $45bn it was once offered by Microsoft), the disclosure of the security breaches nearly jeopardised the deal.

According to Yahoo’s statement, around 500m user accounts in 2014 were hacked, including the names, email addresses, telephone numbers, dates of birth, passwords, and in some cases even encrypted or unencrypted security questions and answers.

This was the second major security breach for Yahoo, which in 2013 suffered a similar fate when around 1bn user accounts were compromised.

At one point, it did appear that the disclosure of these twin security breaches would completely derail the deal.

Verizon is now running a real risk of possible legal action related to the security breaches in the future, in addition to the challenge to conciliating its shareholders that they are not investing in a brand so tarnished as to be unrecoverable.

Meanwhile, the parts of Yahoo that Verizon isn’t buying (Yahoo’s 15 percent stake of the Chinese retail giant Alibaba and a part of Yahoo Japan, which is a joint venture with Softbank) will be renamed Altaba Inc, thought to be primarily inspired by Chinese e-commerce giant Alibaba.

With the closure of the deal, Yahoo’s CEO Marissa Mayer along with another five longtime directors will also step down from the board.

The new entity has also named Eric Brandt chairman of the board, who was the former chief financial officer of the US-based semiconductor producer Broadcom.