Yahoo sale to Verizon confirmed, but is it doomed to fail?

After reports earlier today, Verizon has confirmed that it’s acquiring ailing internet company Yahoo in a deal worth US$4.8-billion.

The joint statement confirms that the sale won’t include Yahoo’s cash, Yahoo Japan, Alibaba and 3000 patents.

“These assets will continue to be held by Yahoo, which will change its name at closing and become a registered, publicly traded investment company,” Yahoo confirmed.

Verizon says that the move will help contribute to its goal of becoming a top media operation, as Yahoo will be integrated into AOL.

“Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers. The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising,” says Verizon chairman and CEO Lowell McAdam.

Yahoo CEO Marissa Mayer said the tie-up was “poetic”.

“Yahoo is a company that has changed the world, and will continue to do so through this combination with Verizon and AOL. The sale of our operating business, which effectively separates our Asian asset equity stakes, is an important step in our plan to unlock shareholder value for Yahoo,” Mayer said. “This transaction also sets up a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising and social.”

The deal is expected to close in Q1 2017, subject to Yahoo shareholder approval and regulatory hurdles.

An alliance of the weak?

At least one expert has expressed doubts about the success of the tie-up though.

“Unfortunately ‘Alliances of the Weak’ in an attempt to make a single strong competitor very rarely work. They are usually left with a bigger ‘weak’ player. This seems likely with this tie-up in a market in which the ‘winner takes all’. If you are not in the top two then unless you have a credible niche, you will suffer. Yahoo have struggled to gain traction and recent results have been particularly disappointing. Why should Verizon and the addition of AOL change that?” noted Professor John Colley of the Warwick Business School.

Colley noted that AOL CEO Tim Armstrong will have an uphill battle to integrate Yahoo into AOL.

“Not only will he have to turn around Yahoo but at the same time oversee the integration with AOL. Integration is frequently blamed for botched acquisitions which destroy value. Loss of market share and key personnel during the integration process has become the norm. Competitors use the opportunity to move in on customers and staff alike. Integration is a major internal distraction for staff who are wondering what the future holds for them. Effectiveness collapses and the business suffers. There are few exceptions. Armstrong will need all the luck he can get.”