5 Reasons Verizon Communications Inc. (VZ) Buying Yahoo! Inc. (YHOO) Makes Sense

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Yahoo! Inc. (NASDAQ:YHOO)‘s CEO, Marissa Mayer, efforts to turn to mobile hasvenot yielded the results that she or stock holders would have been happy with. However, there was no other alternative but to try her luck with the mobile, where the company was struggling while others are marching ahead. But there are impatient activist investors, who want the company to take a quick action on selling its core business. Looking at the possibility of who could bid for it, Verizon Communications Inc. (NYSE:VZ) emerges one of the contenders. Let’s look at five reasons that make sense for the telecom service provider to buy it.

Available At Better Price

About eight years back, Microsoft Corporation (NASDAQ:MSFT) evinced interest in Yahoo! Inc. (NASDAQ:YHOO) and offered an attractive price. However, the company rebuffed the offer, and investors were naturally cursing the management for leaving an excellent opportunity to align with the software firm. At that point of time, its search engine share was more than 20% and was ranked second after Alphabet Inc (NASDAQ:GOOGL)’s Google, which enjoyed a monopolistic share of more than 60%. Since then, it has been losing its share consistently not only to search engine giant but also to the software firm’s Bing, which has become the second as far as search engine share was concerned.

In the same way, Yahoo! Inc. (NASDAQ:YHOO) has also lost its valuation significantly in the last eight years period. That is one of the five reasons that should entice Verizon Communications Inc. (NYSE:VZ) to bid for it. The valuation that Yahoo commands currently is mostly due to its holdings in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo Japan. Those holdings can more closely mirror the value of those properties once the core business is sold. Since the stake in the Chinese firm would become a separate entity, the core business could be available at a much lower price for the telecom service provider, which has also shown interest in acquiring it. Therefore, it must have some solid plan to use it more as a supporting unit than as a rival.

Change Of Guard

In the last over a decade, no one remained in the CEO position in Yahoo! Inc. (NASDAQ:YHOO) for more than two years. The past has witnessed CEOs either getting fired or forced to resign for one or the other factor like providing wrong educational details and the founder paving the way for an outsider to run the organization. A lot of changes have been made, and none of them provided the kind of results that investors were expecting. The current management under the leadership of Marissa Mayer was no exception even though her reign has lasted  over two and half years.

Verizon Communications Inc. (NYSE:VZ) can get rid of the current Yahoo! Inc. (NASDAQ:YHOO) management. Most recently, Yahoo hired a consulting company, McKinsey & Company, to suggest turnaround efforts, a dire sign. In the absence of growth prospects, it was left with no alternative but to resort to more layoffs. Shareholders are aware that the more the delay, the more the erosion of value. Therefore, getting rid of the management will also help the telecom operator to put into place sound management.

Supporting Role

Verizon Communications Inc. (NYSE:VZ) could integrate Yahoo! Inc. (NASDAQ:YHOO)’s services, as well as, capabilities into its distinctive platform. The company could promote Yahoo more as part of a fresh bundle to advertisers, as well as, users. Therefore, supporting role for Yahoo would add value to the telecom service provider than being an independent rival as that involves additional investment to keep it live.

Easy To Promote

One of the biggest advantages for Verizon Communications Inc. (NYSE:VZ) is that it has a largest subscribers base.  It could very well promote Yahoo! Inc. (NASDAQ:YHOO) within its subscribers before targeting others. The acquisition might place the company distinctively different from the other top three service providers. Aside from these, the telecom operator might treat it as an expansion and start offering its own programming too, which might be attached to its network exclusively. That would enable it to allow customers a free download without deducting the data consummation while charging for data for downloading from other sites.

Investment On On-Line Video Content

Another advantage that Verizon Communications Inc. (NYSE:VZ) will have is attracting millennials, as well as, the teens who are the target audience for online video content. Interestingly, Yahoo has been investing in it heavily. That jells well with the objective of the telecom service provider who is keen to bring in more teens and millennials. The company’s CEO, Lowell McAdam, and CFO, Fran Shammo, indicated their readiness to look at a deal rather than refusing to comment.

Conclusion

The five reasons should be enough for Verizon Communications Inc. (NYSE:VZ) to acquire Yahoo! Inc. (NASDAQ:YHOO). As far as the latter is concerned, it should feel that its brand is in safer hands.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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