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Verizon is winner in Yahoo sale with $4.8B bid

Mike Snider, USA TODAY

Verizon is making a major bet that it can put together two fading giants — Yahoo and AOL — to create a new mobile and online powerhouse.

The telecommunications giant announced Monday that it will spend $4.8 billion to acquire Yahoo’s operating business, which includes advertising technology and popular online content such as Yahoo Sports, Yahoo Finance and micro-blogging site Tumblr. Also included in the deal: the Yahoo brand and real estate attached to the core business including Yahoo’s headquarters in Sunnyvale, Calif.

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By pairing Yahoo with AOL — which Verizon bought in May 2015 for $4.4 billion — Verizon’s resulting digital media unit could represent another competitive option for advertisers currently flocking to Google and Facebook. In addition to its valuable ad tech, Yahoo also has digital content such as Yahoo Sports, Yahoo Finance and Tumblr, the blogging service it acquired in 2013 for $1.1 billion. Across its various properties, Yahoo draws 1 billion monthly users.

“For advertisers, it creates a third platform of scale,” said Robert Peck, an Internet equity analyst at SunTrust Robinson Humphrey. “Right now, you only have two of them, which are Google and Facebook. Advertisers are looking for another platform of scale that can reach mass audiences, and this creates that.”

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Verizon has been the leading candidate in Yahoo’s sales process, which received its first round of bids in mid-April. 

The telecommunications company and its AOL unit were attracted by those 1 billion monthly users, said AOL CEO Tim Armstrong, who will oversee the integration under the purview of Marni Walden, Verizon’s executive VP and president of the product innovation and new businesses.

“The scale game has really changed, and my guess is in the next five years it’s going to even more dramatically change,” Armstrong told USA TODAY on Monday. “So putting these companies together gives us a very significant leg up in terms of competing for the future.”

Not included in the deal: Yahoo’s 15% stake in Chinese retailing giant Alibaba, worth $32 billion, and its 36% stake in Yahoo Japan, worth about $8 billion. When the transaction closes — which is expected in the first quarter of 2017 — Yahoo will change its name and become a publicly traded investment company, the company said.

CEO Marissa Mayer will help with the transition and could stay on long term, Armstrong said.

Verizon will lean on Yahoo's user base to grow the audience for its mobile and online video properties including its ad-supported go90 network, launched in October 2015, which streams millennial-focused TV, sports and other content to smartphones and mobile devices. 

Shares of Verizon (VZ) were down Monday 0.4% to $55.87. Yahoo shares (YHOO) were down 2.7% to $38.32.

A former Google exec, Mayer four years ago came to Yahoo — one of the original Web portals and Internet search destinations — to captain a turnaround. 

Despite Yahoo growing its mobile advertising business under Mayer's tenure, the company is expected to earn a dwindling share of a growing global digital ad market, according to research firm eMarketer.  

Yahoo's share of the $187 billion market is predicted to drop from 1.5% in 2015 to 1.3% this year, eMarketer projects.

Frustrated by stalling growth and a sliding stock price, activist investors pressured Mayer and the board to cut costs and sell off core assets — a campaign that resulted in Monday’s deal. 

Follow Mike Snider on Twitter:@MikeSnider

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