
Verizon's Historic Deal to Buy Yahoo! -- What Wall Street's Saying
Updated with comments from Robert Peck.
Yahoo!'s (YHOO) saga of missed opportunities and years of identity crises has finally come to an end with the news that Verizon Communications (VZ) - Get Report will buy the Silicon Valley company for $4.8 billion in cash.
The deal excludes select assets, so shareholders will be left with about $41 billion worth of investments in Yahoo! Japan, Chinese e-commerce company Alibaba (BABA) - Get Report and a few non-core patents, the New York Times reported.
The move for Verizon follows the acquisition of AOL two years ago in an effort to focus the company's efforts on online advertising and mobile video for revenue.
"Yahoo and AOL popularized the Internet, email, search and real-time media," Yahoo! CEO Marissa Mayer said in a statement released this morning. "It's poetic to be joining forces with AOL and Verizon as we enter our next chapter focused on achieving scale on mobile.
The deal reportedly won't close until 2017, but short term, analysts are saying this could have a significant impact on the telecommunications industry, and put Verizon even farther ahead of competition.
Here's what several analysts are saying:
Jonathan Atkins, RBC Capital Markets (Outperform rating on Verizon; price target raised 4% to $56)
VZ's acquisition of YHOO's core Internet business and real estate for $4.8B is not surprising. We believe management sees potential in YHOO's ability to drive more impressions to VZ's digital platform with emphasis on mobile-first viewing patterns, and finds the finance and sports portals of YHOO of interest. The acquisition would strengthen VZ's position in building online content and prospects for capturing an increasing share of online advertising. Potential source of funds include cash on hand and possible sale of its datacenter assets. VZ has been seeking a buyer for its datacenter and could potentially raise ~$2.5B or more from the sale. RBC estimates YHOO 2017 GAAP revenue and EBITDA of $5.5B and $857.6M, respectively, compare to VZ's revenue and EBITDA estimate of $129.3B and $46.9B, thus, we anticipate minimal financial impact on overall company financials.
Jeffrey Kvaal, Nomura (Neutral ratings on both Verizon and Yahoo!; $47 price target for Verizon and $39 for Yahoo!)
Yahoo is easily digestible by Verizon; we expect Verizon to generate $15bn in FCF in 2016 and 2017. Overall, however, Verizon's new media deals (AOL at $4.4bn, Millennial Media, AwesomenessTV, etc) are passing through $10bn with more work to do. Verizon must therefore execute crisply on the strategic and operational rationales for the deal -- synergies that likely allowed it to outbid rival private equity offers. ... Yahoo would be a relatively inexpensive means for Verizon to strengthen its media platform.
Robert Peck, SunTrust Robinson Humphrey (Neutral on Yahoo!, price target of $42)
Many investors have been anticipating this outcome for quite some time and have asked, "What's next?". The next step, as we have discussed would be to sell / distribute the Yahoo Japan shares (4689-JP, ¥456, NR). As we pointed out in our downgrade last week we thought this may be more complicated than most realized. Many investors have hopes SoftBank (9984-JP, ¥5,392,NR) would be interested in buying the Y!J shares, but the subsequent ~$30B purchase of ARM Holdings (ARM-GB, £16.78, NR) by SoftBank may cloud that potential transaction. If SoftBank isn't interested, we think Yahoo could possibly sell the shares to Japanese investors or distribute to current shareholders.
Amir Rozwadowski, Barclays
Should the transaction progress as reported, we believe investors' key questions are likely to focus on the near-term financial impact of the business, possible synergies with Verizon's AOL and DMS properties, and how to best understand Yahoo's value proposition within the umbrella of the Verizon organization. ... As we have written about on a number of occasions ... we believe the primary focus of a potential Yahoo acquisition is to expand Verizon's presence in the digital media / advertising arena. While the AOL transaction brought a number of advertising technologies to bear, we believe Verizon is eyeing the potential scale of Yahoo's user base as a means to accelerate its desire to scale its business.









