Yahoo could become Internet history
Yahoo could become Internet history
After a long struggle to lure people back to Yahoo Mail
and its search engine, the trailblazing online service plans to spin off its
core business, putting it in a position to be scooped up.
December 9, 2015 4:33 AM PST
by Richard Nieva
A decade and then some past its heyday as an Internet
pioneer, Yahoo will spin off its core business after failing to convince people
that its products are still worthwhile.
The Sunnyvale, California, company said Wednesday it will
scrap its plans to spin off its stake in Chinese e-commerce giant Alibaba,
worth more than $30 billion. Instead, it will reverse course and look at
"alternative transaction structures" to separate the stake. That
approach could make it easier to ultimately sell the spun-off core business.
"Informed by our intimate familiarity with Yahoo's
unique circumstances, the Board remains committed to accomplishing the
significant business purposes and shareholder benefits that can be realized by
separating the Alibaba stake from the rest of Yahoo," Chairman Maynard
Webb said in a statement. "To achieve this, we will now focus our efforts on
the reverse spin-off plan."
Yahoo's board voted unanimously for the reverse spin-off,
but it wasn't the first choice for action because it will take a year to
perform and involves more outside parties, CEO Marissa Mayer said on a
conference call. Yahoo needs the approval of shareholders, US regulators, Yahoo
investor SoftBank and business partners of which there are "too many to
name," Chief Financial Officer Ken Goldman said on the call.
A spin-off of Yahoo's Web business might have more
symbolic significance than anything else. The once-mighty trailblazer, founded
in 1995 by Stanford University students Jerry Yang and David Filo, is one of
the last independent titans of the early Internet. In June, AOL, which helped
many people get onto the Internet for the first time through its early dial-up
service, was bought by Verizon. Also now just memories of that earlier era are
Netscape, Napster and many of the other services that taught us, while stabbing
in the dark, how to surf, listen and live online. Yahoo was once the brightest
star of the bunch.
The spin-off would also mean the company that Yang and
Filo co-founded could be stripped down to an entity that's of more interest to
investors than everyday computer users.
Of course, it could be argued that most of us largely
lost interest in Yahoo a long time ago.
When Mayer, a former Google executive, was named CEO in 2012,
she was tasked with turning around the already lumbering company.
To do that, she has tried to remake Yahoo for the mobile
era as consumers migrated from PCs to smartphones and tablets. She has
refreshed each of its mobile properties, including Yahoo Mail, Weather, Finance
and Sports. She has also tried to make the company a premier media destination,
hiring well-known personalities such as journalist Katie Couric and acquiring
the rights to high-profile shows like the sitcom "Community."
But Mayer hasn't been able to replicate the excitement
around products that many of Yahoo's fiercest rivals have been able to ignite.
Once one of the most powerful brands on the Web, Yahoo has been overtaken in
search and email by Google, and beaten in media by Netflix and Amazon. (Yahoo
has acknowledged it never found a way to make money off "Community.")
Facebook and even newer players like Snapchat have won over users that Yahoo
has coveted for its messaging app.
Brett Sappington, director of research at Parks
Associates, said one of Yahoo's biggest mistakes was not making bets in new and
innovative areas, as Google and Amazon have.
"In the world of the Internet, which is diverse and
incredibly unpredictable, you have to be adaptable and open to change,"
said Sappington. "Yahoo in contrast really defined their business very
tightly."
Yahoo plans to reveal details of strategic changes to its
core businesses during its next quarterly conference call. It wouldn't discuss
options for selling those businesses.
"We have made no determination to sell the company
or any part of it," Webb said. "We believe that we are tremendously
undervalued, and we think the best path to unlocking that value is by
separating the Alibaba assets from our operating businesses and also by turning
around the performance of the operating businesses."
Possible buyers for Yahoo's main business could include
private equity firms, big media companies and telecommunications companies. On
Monday, Verizon Chief Financial Officer Fran Shammo said the wireless carrier
would explore buying Yahoo's Internet business if it "makes sense,"
according to Bloomberg.
This isn't the first time Yahoo has been caught up in
talk of a sale. In a saga that dragged on for months, Microsoft in 2008 bid
$44.6 billion on the company, though then-CEO Yang balked.
Yahoo's planned Alibaba spinoff was designed to let Yahoo
off the hook for a tax bill of billions of dollars. But in May, questions began
to pop up about the spinoff, after the Internal Revenue Service proposed new
rules around taxing corporate spinoffs.
Activist investor group Starboard Value, which owns less
than 1 percent of Yahoo, was originally behind the spinoff but in November told
Mayer to jettison Yahoo's Internet business instead.
Max Levchin, co-founder of PayPal and the first person
named by Mayer to the Yahoo board, told the company Friday that he was
resigning as a director. Yahoo said Levchin is stepping down to focus on his
online lending startup, Affirm, and has dropped nearly all of his other board
commitments.
Yahoo's chairman, meanwhile, went out of his way
Wednesday to defend Mayer's performance.
"The board has complete confidence in the management
team and the leadership of Yahoo and believes it's making important strides
toward its transformation," Webb said on the conference call.
Mayer tooted her own horn, too.
"Today, I'm leading very different company from the
one I started at in July of 2012 -- one with better products, improved
partnerships, more focused employees, dramatically more mobile users and mobile
revenue, more modern advertising tech to serve our clients' needs," she
said. "We're taking further steps to tighten our focus and prioritize our
investments to drive growth."
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