Yahoo Japan Corp. proposed a “merger of equals” with Yahoo! Inc. -- but was rebuffed -- during a months-long process that eventually led to Verizon Communications Inc. acquiring the U.S. internet company’s core assets.

September 12, 2016

3 Min Read
Yahoo Japan Sought Merger With Yahoo Before Verizon Deal

By Bloomberg

(Bloomberg) — Yahoo Japan Corp. proposed a “merger of equals” with Yahoo! Inc. — but was rebuffed — during a months-long process that eventually led to Verizon Communications Inc. acquiring the U.S. internet company’s core assets for more than $4.8 billion, according to a regulatory filing detailing the sales effort.

The board of Yahoo Japan in February sent a letter to Yahoo Chairman Maynard Webb and Chief Executive Officer Marissa Mayer about a deal that would hand the company’s shareholders 50 percent of the combined entity — and about $14 billion in cash, according to the filing made Friday. It also contemplated a commitment from Alibaba Group Holding Ltd. to purchase about half of Yahoo’s stake in the Chinese e-commerce company. The deal was rejected because it offered no premium and would have triggered a full tax hit for the shares of Alibaba.

“After careful consideration, the Strategic Review Committee concluded that the terms described in Yahoo Japan’s letter were not compelling,” the company said in the filing.

The proposal from Yahoo Japan came from representatives of SoftBank Group Corp., run by billionaire Masayoshi Son. SoftBank already owns 43 percent of Yahoo Japan and Son is on the board, while Yahoo owns about 36 percent.

The filing describes a long and complex process that led to a winning bid for Yahoo in July as several entities offered billions of dollars for the struggling web portal’s core business. Along the way, the company’s advisers communicated with more than 50 potential parties. More than 30 parties signed confidentiality agreements to review financial data on Yahoo, according to the filing.

Verizon announced July 25 that it would acquire Yahoo’s internet assets for more than $4.8 billion, bringing the web portal together with longtime rival AOL. The telecommunications company will add Yahoo web services that still draw 1 billion monthly users, including mail, news and sports content and financial tools. The all-cash deal, which is expected to close in early 2017, includes Yahoo real estate, but excludes some intellectual property which will be sold separately. Yahoo will be left with its stakes in Alibaba and Yahoo Japan.

The filing also revealed that Yahoo co-founder David Filo, a board member, was asked to back one of the proposals in July. That proposal wasn’t accepted. Filo, however, expressed interest in possibly joining the bid, and was restricted in the decision-making process, according to the filing.

Final Round

In the final round in July, Yahoo received five bids, including Verizon’s. They ranged in price from about $3 billion to $4.83 billion, and included different terms. One party increased its bid to $4.8 billion — just below Verizon’s $4.83 billion — in the days before the final announcement, but that wasn’t enough to persuade Yahoo’s board.

"Verizon’s proposal was more favorable than the other acquisition proposals," the company said of the final bid.

AT&T Inc. and Quicken Loans Inc. founder Dan Gilbert, as well as firms Vector Capital Management and TPG, were also active in bidding for Yahoo, according to people familiar with the sale process.

Yahoo became an acquisition target after Mayer, who joined Yahoo four years ago, failed to revive sales growth at the Sunnyvale, California-based company. The disappointing results drew the ire of investors, most notably activist Starboard Value LP. The company averted a proxy war in April when it agreed to place four new members on the board, including Starboard CEO Jeffrey Smith.

With the Verizon transaction, Mayer may receive $44 million in compensation with a "qualifying termination," according to Friday’s filing. Lisa Utzschneider, Yahoo’s chief revenue officer, may get about $20 million, the filing also said.

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