Yahoo and AOL, kings of the early internet, saw their fortunes decline as Silicon Valley raced ahead to create new digital platforms. Google replaced Yahoo. AOL was supplanted by cable giants.
Now they will become the property of private equity. Verizon, their current owner, agreed to sell them to Apollo Global Management in a deal worth $5 billion, the companies announced Monday.
The business housing the two brands, Verizon Media, is to be renamed (yet again) to Yahoo (sans the brand’s stylized exclamation point), and the sale will also include its advertising technology business. Verizon will retain a 10 percent stake in the newly formed media group, the company said in a statement.
Guru Gowrappan, the head of Verizon’s media business, who will continue to lead the new Yahoo, was optimistic in a note to employees Monday morning. “This next evolution of Yahoo will be the most thrilling yet,” he said in the memo, which was obtained by The New York Times.
championed the deal as part of its “strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium experience.”
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Tim Armstrong, the head of AOL, was part of the package, and he soon persuaded Verizon’s executives to add to its media holdings. Mr. Armstrong orchestrated the 2017 purchase of Yahoo for $4.5 billion — a prize he had been pursuing for years.
In the statement announcing the deal at the time, Mr. Armstrong said, “We’re building the future of brands.”
It was all in the pursuit of almighty “scale,” a business term of art that has almost become a religious mantra in Silicon Valley. The goal was to build a bigger audience to sell more advertising. But the internet’s economics had already shifted years before, and content that users provided free, whether in the form of Facebook posts or YouTube videos, drove much online activity. AOL and Yahoo, despite their big audiences, had become distant also-rans.
Verizon still saw value in Yahoo and AOL. The idea was to give Verizon customers content they couldn’t get elsewhere at a time when all cellphone service offerings were essentially the same. And AOL’s giant ad-tech business could give Verizon a better way to sell advertising on its phones.
departure of Mr. Armstrong and began a restructuring of the media unit. In early 2019, it laid off about 800 workers, about 7 percent of the staff. Last year, Verizon began to dismantle the media group with the sale of HuffPost to BuzzFeed.
Mr. Vestberg called the Apollo transaction “a bittersweet moment” in a companywide memo Monday morning, but he added that the sale “is a big step forward” for the media group.
“I believe this move is right for all of our stakeholders, including the Media employees,” he said. “Our purpose is to create the networks that move the world forward, and this will help us better focus all our energy and resources on our core competencies.”
Verizon has had to spend big to improve its mobile business. In March, it agreed to pay nearly $53 billion to license wireless airwaves that will help the company expand its 5G infrastructure. It also plans to spend $10 billion over the next few years to wire more cell towers and upgrade its systems. The company’s total debt now exceeds $180 billion, and its net debt is more than three times its annual pretax profits. Typically, the industry prefers to keep that ratio closer to 2.5.
For Apollo, the purchase is an opportunity to further invest in the digital media space — an industry it has already put money into, with deals for the photo printing business Shutterfly, the web-hosting company Rackspace and Cox Media Group, which owns TV and radio stations throughout the country. Apollo also has plenty of experience with the complex process of buying businesses spun out from larger companies, which generally requires separation of interwoven financials, systems and, often, key executives.
And Yahoo and AOL still generate plenty of revenue. Verizon’s media division recorded $1.9 billion in sales in the first three months of 2021, a 10 percent gain over the prior year.