13 Jun Verizon Closes Yahoo, Many Changes Ahead For Its Consolidated Media Services Subsidiary

Verizon Communications  announced today that it closed its acquisition of Yahoo for nearly $4.5B. It also closed the door on Marissa Mayer as she departs from the beleaguered internet company that she led since mid-2012.

Two storied brands come together

With the addition of Yahoo, Verizon is planning to consolidate its other holding of AOL  acquired 2 years ago. Yahoo has languished behind rivals like Google, struggling to manage data breeches and declining revenue. Its former CEO was also divisive at times, creating a recent controversy around eliminating telecommuting for her employees.

AOL has had similar challenges on its road to reinvention. Best known as an internet dial-up service provider in the early days, it has transformed into a media company through strategic acquisitions. In 2009, Tim Armstrong joined as CEO from Google, and by early 2013 he had turned the company around with its first quarterly revenue growth in 8 years. Flash forward to 2015, and AOL made news most notably with the announcement of taking over Microsoft’s digital advertising business.

Will a phoenix emerge?

The combination of Yahoo and AOL will result in the formation a new Verizon subsidiary called Oath. Oath is positioned as a media and telematics company focused on digital media, online advertising, online services and software. Former AOL CEO Tim Armstrong has been tapped to lead the new organization as Ms. Mayer leaves with a published net worth of $430 million.

It will be a bumpy path as the companies consolidate. Verizon plans to shed about 2,000 jobs representing a 15% reduction of workforce of the combined AOL and Yahoo units. Mr. Armstrong has proved his capability in the past, but can Oath deliver accretive revenue and profitability as Verizon struggles with its core wireless business? How compatible and healthy are the Yahoo and AOL cultures? Ms. Mayer didn’t help bolster morale at Yahoo given her management style. Many challenges lay ahead for the new Oath organization.

What’s the value impact for Verizon shareholders?
As the US carriers add end user content to their stables, what is the ultimate impact to Verizon’s bottom line with Oath? AT&T will close its acquisition of Time Warner  in short order and Sprint Nextel  is bolstering its content play with an investment in the streaming music service Tidal. Content creates stickiness in the wireless telco space and is a great retention tactic to reduce subscription churn. Oath doesn’t appear on the surface to do the same thing, but it consolidates some powerful and far reaching digital media and online advertising services under a proven turnaround leader in Mr. Armstrong. It will be interesting to see how all of this unfolds for Verizon over the long haul.