The Deal: Yahoo! Posts Tumblr For $1.1B in Mobile Growth Bid

NEW YORK ( TheDeal) -- Yahoo! ( YHOO), the Sunnyvale, California-based Web company undergoing a broad strategy shift under new CEO Marissa Mayer, will acquire New York startup Tumblr for $1.1 billion in cash in an ongoing attempt to establish its presence on smartphones.

Tumblr reportedly took in $13 million in revenue in 2012, and so far into 2013 has fallen short on its revenue goals of $100 million. The company raised about $125 million from venture capital investors from 2007 to 2011.

"Tumblr brings 50 billion blog posts (and 75 million more arriving each day) to Yahoo!'s media network and search experiences," the companies said in a joint statement Monday, May 20.

Mayer's arrival at Yahoo! has come with a flurry of deals as the company has sought to reinvent itself and bolster its presence on mobile devices.

Thus far among 2013's acquisitions for Yahoo! are: Summly, a news application; Loki Studios, for mobile gaming; MileWise, an app for travelers; Astrid, a to-do list organizer; and GoPollGo, a social polling tool.

The latest social media deal is not unlike Facebook's ( FB) $1 billion pre-initial public offering grab of nascent startup Instagram in 2012, which the social network bought in order to continue its trajectory onto smartphones after years of dominance on desktop hardware.

Still, Yahoo! has had difficulty absorbing some of its startups in the past. Perhaps its most notable deal that soured, from 1999, is a $3.6 billion buy of GeoCities, which it would shut down a decade later.

But sources said that under Mayer, the company's reputation has improved and Yahoo! has increasingly been seen as a viable Silicon Valley technology company on the rebound.

Yahoo! even seemed to acknowledge its rocky M&A past when, in its statement earlier Monday, it said: "Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business. David Karp will remain CEO."

Karp is Tumblr's founder, who, as a teen and high school dropout, developed the company in 2007.

Yahoo!'s pledge also was likely directed less toward Tumblr staff -- of which there are approximately 175 -- than it was toward the startup's millions of users, who might regard the legacy Web company as stodgy. Earlier this month, speaking at JPMorgan's ( JPM) global technology conference in Boston, Yahoo! CFO Ken Goldman admitted the company has an "aging demographic" and needs to again become "cool" with a younger user base.

The deal represents a substantial win for venture capital investors in the company, including Sequoia Capital, Greylock Partners, and Insight Venture Partners. Late in 2012, sources said Tumblr considered raising a new venture capital round because a prospective IPO would have to be delayed. Sources said some stakeholders in Tumblr took to secondary stock markets last year to sell shares, although they declined to say what the company was valued at in 2012.

Simpson Thacher & Bartlett LLP is advising Yahoo! on the deal with a team lead by corporate partner Gary Horowitz and including Kirsten Jensen, Sean Crnkovich, Andrew Nightingale, Cara Walsh, Katharine Moir, Tristan Brown and Linda Barrett.

Qatalyst Partners' Jonathan Turner provided financial advice to Tumblr, with law firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP's Ward Breeze, Steve Baglio and Dan Goldberg providing legal advice.

Written by Jonathan Marino in New York

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