After more than two years of on-again, off-again negotiations, the complex $7.6 billion deal is done between Yahoo and China’s Alibaba Group. Yahoo’s shareholders, who have painfully watched the company weaken over the last few years, are likely breathing sighs of relief right about now.
In recent months there has been a lot of buzz about what would happen when this deal finally closed. Where would the billions of dollars in cash and stock go?
Before hiring its latest CEO, Marissa Mayer, in July, Yahoo had pledged to distribute nearly all of the proceeds from the sale to its shareholders. But then there was talk of Mayer warning shareholders that she might not return money to them after all. Yahoo wavered from its pledge and filed regulatory documents disclosing that Mayer was in fact considering denying shareholders of the proceeds. Instead, the money would eventually be spent in her efforts to revive the company’s growth. The documents stated that Mayer was examining possible acquisitions, but they did not provide specifics.
Obviously this did not make shareholders happy, but overall I think that using the money to grow the company would have been a wise idea. Giving billions to shareholders through a stock buyback or a one-time dividend is like giving a five-year old $10,000 instead of putting it toward his college tuition. He’ll love you at first for it, but eventually it will be forgotten and the long-term outlook will grow dimmer.
Upon the completion of the sale we have learned that Mayer will not be holding on to all of the Alibaba money. After taxes, most of the profits from the sale ($3.65 billion) will be paid out to shareholders in the form of dividend or stock buybacks, leaving Mayer and her team with about $1.3 billion to play with.
“This yields a substantial return for investors while retaining a meaningful amount of capital within the company to invest in future growth,” Mayer said in a statement.
Now that Mayer got the cash infusion that she was looking for, the technology world is eagerly waiting to see what she is going to do next. She’s already provided free food and offered to buy an iPhone 5 or Android for her entire staff, so now what? Her options are numerous, but there is speculation that she may try to make a huge move like putting together a takeover offer for one of the Internet’s hot websites, such as Pinterest, Vimeo, Yelp or even Foursquare. Mayer already tried to purchase Yelp once when she was at Google, but Yelp rejected the offer and went for an IPO. Yahoo is not nearly mobile enough, and acquiring Yelp would give its mobile platform a tremendous boost. Yahoo currently has a monthly audience of 700 million users that it plans to build on as it develops more effective ways to connect with people on smartphones and mobile devices.
Vimeo would also be an excellent site for Yahoo to purchase. I consider Vimeo to be YouTube’s potentially very talented little brother. If Yahoo aims to be a serious contender to Google (who owns YouTube), it could use its own version of a leading video sharing site. Internet videos have become a useful method of sharing information, and they are extremely popular with people. Internet users watch more than 500 years’ worth of YouTube videos on Facebook every day, and they share about 700 videos on Twitter each minute. Video content is now part of the content marketing strategy of many webmasters and marketers. Acquiring Vimeo would probably come with a price tag of around $3 billion, but it could greatly increase the amount of traffic to Yahoo, boost the company’s search and social, and bring in lots of brand advertising money.
If Mayer does not wish to spend most of Yahoo’s money in one place, a smaller, less costly acquisition would be Foursquare. Reports surfaced back in 2010 that Yahoo was considering purchasing the mobile check-in service for around $100 million. That deal didn’t work out, and Foursquare’s last funding round valued the company at $600 million, meaning that Yahoo would have to pay at least $500 million to $1 billion for the company. Foursquare is currently one of the hottest names in location-based services, and it could give a big boost to Yahoo in social, mobile and local. Mayer was in charge of local at Google, and it wouldn’t surprise me if Foursquare was her top acquisition candidate.
In order to succeed, Mayer must use the money from the Alibaba sale to take one of the Internet’s most recognizable brands and make it more profitable. She must apply her extensive knowledge of working on the user experience, doing for Yahoo what she did for Google. By recapturing the audience’s attention and driving more traffic to Yahoo’s website, this will in turn help Yahoo sell more online advertising space and revive revenue growth. I am personally rooting for Mayer’s success because I am eager to see epic new products that will give Yahoo the reinvention that it needs and make the Internet a better place for all of us.