Topic - Acquisition

Case Studied - VERIZON & Yahoo!

NIFT Gandhinagar B.F.Tech. (Apparel Production)

JOINT VENTURE ACQUISITION

Contents ACKNOWLEDGEMENT............................................................................................................. 1

What is an 'Acquisition' .................................................................................. 3

Why Make an Acquisition? ............................................................................ 3

Acquisition of YAHOO by VERIZON!.......................................................................................... 3

YAHOO ..................................................................................................................................... 4

VERIZON................................................................................................................................. 4

ACQUISITION Process.................................................................................................................... 5

Why was the acquisition made? .................................................................................. 6

Why did the target agree to be acquired?........................................................................ 6

Why did the Acquirer see in the Acquired?...................................................................... 6

Why is this acquisition interesting to study? .................................................................... 7

Potential value creation /or value destruction ................................................................... 7

Future of this Deal ................................................................................................ 9

References: ....................................................................................................... 10

ACKNOWLEDGEMENT

First and foremost, we would like to thank to our Faculty, Ms.Amisha Mehta for the valuable guidance and advice. She inspired us greatly to work in this

project. Her willingness to motivate us contributed tremendously to our project. We also would like to thank her for showing us some example that related to the

topic of our project. Finally, an honourable mention goes to our families and friends for their

understandings and supports on us in completing this project.

- Abhishek Gupta

Nikhil Singh

(DFT-6)

What is an 'Acquisition' An acquisition is a corporate action in which a company buys most, if not all, of another

firm's ownership stakes to assume control of it. An acquisition occurs when a buying

company obtains more than 50% ownership in a target company.

As part of the exchange, the acquiring company often purchases the target company's stock

and other assets, which allows the acquiring company to make decisions regarding the newly

acquired assets without the approval of the target company’s shareholders. Acquisitions can

be paid for in cash, in the acquiring company's stock or a combination of both.

Why Make an Acquisition? Companies perform acquisitions for various reasons.

They may be seeking to achieve economies of scale, greater market share,

increased synergy, cost reductions, or new niche offerings.

The purchased business will already have its own personnel (both labour &

management), a brand name and other intangible assets, ensuring that the acquiring

company will start off with a good customer base.

Acquisitions are often made as part of a company's growth strategy when it is more

beneficial to take over an existing firm's operations than it is to expanding on its own.

When an industry attracts too many competitor, companies may look to acquisitions

as a way to reduce excess capacity, eliminate the competition, or focus on the most

productive providers.

Acquisition of YAHOO by VERIZON!

US telecom giant Verizon Communications has bought Yahoo's search and

advertising operations for $4.83 billion on 25th July, 2016.

This marks an end of Yahoo!

In past, many companies tried to acquire yahoo but yahoo refused.

One of them was Microsoft, who made an unsolicited bid to acquire Yahoo

for US$44.6 billion in 2008.

YAHOO

Founded in Jan. 1994 by two Stanford PhD candidates, Jerry Yang and David Filo

Yahoo was the original guide to the Internet, connecting users with their passions and helping

them to discover the mystery and promise of the World Wide Web.

Marissa Mayer, a former Google executive, serves as CEO and president of the company.

Type of site Public

Headquarters Sunnyvale, California, U.S.

Industry Internet Computer software

Revenue $ 5.16 Billion (2016)

Employees 8500 (2016)

VERIZON

Verizon Communications, Inc. (simply known as Verizon), is an American multinational

telecommunications conglomerate and the largest U.S. wireless communications service

provider. It operates America’s most reliable wireless network, with 112.6 million retail

connections nationwide.

The company also provides communications & entertainment services over America’s most

advanced fiber-optic network, & delivers integrated business solutions to customer

worldwide.

Type of site Public

Founded October 7, 1983

C.E.O. &

Chairman

Lowell McAdam

Headquarters 1095, Avenue of the Americas New York City, New York

Industry Telecommunications

Mass Media

Revenue $ 125.98 Billion (2016)

Employees 1,62,000 (2016)

ACQUISITION Process 1st step

Transfer of any assets related to Yahoo business to a singular subsidiary. This includes the

stock in the business subsidiaries that make up Yahoo that are not already in the single

subsidiary, as well as the odd assets like benefit plan rights. This is what is being sold to

Verizon.

Not Included:

Excalibur Portfolio-Yahoo oldest patents

Yahoo Japan

Yahoo stakes with Alibaba

10 Billion cash

Yahoo convertible notes, minority investments such as Snapchat

2nd step

Yahoo will sell the stock in the single subsidiary to Verizon. At that point, Yahoo will change

its name to something without “Yahoo” in it.

Shareholders:

Because it is a sale of a subsidiary, the $4.8 billion will be paid to Yahoo. Its shareholders

will not receive any money unless Yahoo pays it out in a dividend (after paying taxes).

Instead, Yahoo shareholders will be left holding shares in the renamed company.

VERIZON Yahoo

Verizon’s Yahoo will then be run under the same umbrella as AOL. It is unclear whether

there will be a further merger of the two businesses after the acquisition. Plans for Yahoo still

unclear because it is under-process.

Why was the acquisition made? Yahoo was never really able to adapt its technology and culture for a post-2000 internet that

was focused on social media and mobile devices, and so it steadily fell behind rivals such as

Google and Facebook.

Verizon wants in on the content game

One of the reason is that, Verizon was a strong candidate to acquire Yahoo. Verizon bought

another struggling internet company, AOL, last year. And AOL has a lot in common with

Yahoo. So the lessons Verizon learned from its AOL acquisition could prove valuable as

Verizon digests Yahoo.

Why did the target agree to be acquired?

1. Yahoo facing a perpetual media/tech identity crisis

Yahoo never had the same kind of obsessive focus on recruiting technical talent.

Yahoo created technology products that people use and media properties that have

an audience, but its attempt to be a technology company and a media company

simultaneously resulted in an organization that was less than the sum of its parts.

2. Yahoo's core business seemed to be worth less than nothing

Yahoo's media and tech businesses were overshadowed by a third line of business:

venture capital.

Yahoo invested $1 Billion in AliBaba and had around 35% stake in Yahoo Japan.

From then, it was trying to revive its business.

Why did the Acquirer see in the Acquired? VERIZON is highly interested with yahoo’s technology & web properties. Deal will

create a new rival in mobile media technology over 1 billion users, with an unrivalled

roster of the world’s most beloved brands.

The addition of Yahoo to Verizon & AOL will create one of the largest portfolios of

owned & partnered global brands with extensive distribution capabilities. Combined,

AOL & Yahoo will have more than 25 brands in its portfolio for continued investment

& growth.

Why is this acquisition interesting to study? While Yahoo’s search function, it’s News, Finance and Sports channels are all still

very popular, and help the company get about a billion monthly visits. These high-

traffic resources have been important for Yahoo’s presence over the years, and will

now benefit Verizon’s reach, traffic and ad revenue.

Verizon have been pushing their own short-form mobile video content service, 'Go90'

past last year. Verizon knows they’ll need a major injection of video content to

compete with the likes Netflix, Hulu and Amazon.

They needed a better platform to release its video content on. They knew that behind

every successful and engaging video is the right platform that connects the content

with the audience.

Potential value creation /or value destruction Yahoo shares look undervalued in the wake of company’s expected move to sell its core

business to Verizon.

The shares fell $1.06 (2.7%), to $38.32 in trading, in the wake of the deal announcement

reflecting dis-appointment with the headlines sales price. Moreover, it may take 12 to 18

months to fully unwind Yahoo, which will consist of a pile of cash& valuable stakes in

Yahoo Japan &Alibaba following the sale of core business, which is expected to close in 1st

quarter of following year.

Enhancing the Acquirer's Competitive Advantage

Verizon Strengthens 5 Major Areas Following Its Acquisition of Yahoo.

1. Mobile

Like all tech companies, mobile's been a major focus for Yahoo in recent years, and

the company claims to have 600 million monthly users.

Combined with Verizon's 100 million wireless customers and a trove of data on

consumers' whereabouts and habits, the Yahoo acquisition means that AOL can

theoretically take on digital juggernauts Facebook and Google.

2. Native and search ads

Yahoo still has more than one billion monthly users—a significant audience for AOL

in terms of both content and advertising potential.

Yahoo's flagship search product is a self-served ad platform called Gemini that

marketers can target with native and keyword-based promos.

3. Targeted video ads

As AOL looks to beef up its mobile video efforts through its Go90 streaming app with

exclusive content from media brands and creators, BrightRoll—Yahoo's

programmatic video platform—is potentially one of the most interesting assets

Verizon is getting.

4. Tumblr's millennial audience

Yahoo paid a whopping $1.1 billion for Tumblr in 2013 to reach its rapid fan base of

millennial who love its creative posts.

3 years later, Yahoo has been slow to roll out new features and more sophisticated

types of ad targeting.

5. App analytics

Mobile app analytics company Flurry is another one of Yahoo's acquisitions.

After buying the mobile player in 2014 for $300 million, Yahoo began plugging

Flurry into its ad network, letting advertisers measure how many people actually

visited a store after seeing a video ad.

Acquirer having Parenting Advantage

After the Verizon acquisition, signature Yahoo properties like its search engine, email

service, photo sharing site Flickr, and blogging platform Tumblr will presumably

continue operating.

Verizon is in a process of building a portfolio of online content, with their successful

acquisitions of Yahoo & AOL.

Verizon has the ability to track users’ online behavior perhaps even more broadly than

Google and Facebook do—including their location. Combining Verizon’s tracking

abilities with Yahoo and AOL’s audience and ad technology, and they will have the

makings of a potential powerhouse.

Major Pitfalls

In its quest to avoid a Yahoo-like decline, Verizon risks repeating one of its key

mistakes.

Verizon executives reportedly feel that Yahoo’s value has been diminished by the

hacks, which could adversely impact future growth in user accounts.

Yahoo, too, sought to fight irrelevance through diversification. But in the process of

tacking on acquisitions, it lost sight of its identity.

Yahoo bring their own acquisition disaster stories.

With Yahoo we have a litany of failed acquisitions: Broadcast.com for $5.7

billion, Geocities for $3.6 billion, Tumblr for $1.1 billion.

Benefits of this Deal!

Verizon has now become the 3rd-largest digital platform for online advertising

following the acquisition of Yahoo.

Since the acquisition, Verizon has added a no. of other advertising-related businesses,

including most of Microsoft's ad-technology operations and an ad-technology

company called Millennial Media.

For Verizon, the deal paves the way to assembling a new media empire capable of delivering potentially billions in advertising revenue and offsetting slowing growth in its wireless and wire line business units.

Yahoo’s widely distributed content capabilities will provide Verizon with the

ability to both expand their digital advertising endeavours and continue to reach wider

(and younger) audiences.

Future of this Deal The US telecoms giant is expected to merge Yahoo with AOL, to create a digital

group capable of taking on the likes of Google and Face book.

Verizon bought AOL last year for US$4.4 Billion.

Yahoo will change the name and become publicly traded investment company.

This deal helps Verizon to expand its market and it attracts all the loyal customers to

Verizon.

Under Verizon, a merged Yahoo–AOL makes sense. Their combined traffic would

make them the largest digital media company in the U.S., ahead of Google.

Overall assessment of the deals Yes, this deal is advantageous to Verizon as this deal has provided hike in the market

value share of Verizon.

The company is benefitted with the acquisition as yahoo has provided a major

platform to Verizon’s video gallery and has boosted the growth of the company.

The value of company share has been greatly benefitted by the acquisition.

References: https://www.nytimes.com/2016/07/30/business/dealbook/yahoos-sale-to-verizon-

leaves-shareholders-with- little-say.html?_r=0

http://www.investopedia.com/terms/a/acquisition.asp

https://www.forbes.com/sites/greatspeculations/2016/07/25/verizon-buying-yahoo-

analyzing-the-benefits-and-challenges/#19e59cef5f81

http://www.adweek.com/digital/verizon-strengthens-5-major-areas-following- its-

acquisition-yahoo-172653/

https://qz.com/747309/verizons-acquisition-of-yahoo- is-a-marriage-of- incompatible-

cultures-and- it-wont-end-well/