Behind The Scenes Of The Tumblr Deal, A $1.1 Billion Acquisition One Month In The Making

tumblr david karpDavid Karp, founder and CEO of Tumblr

Today, Yahoo announced its $1.1 billion all-cash acquisition of social blogging platform, Tumblr.

How did the deal come to be? What happened during the Yahoo board meeting over the weekend that everyone’s been talking about?

We spoke with people familiar with the inner workings of the deal. Here’s how the $1.1 billion acquisition happened.

A few weeks ago, Tumblr and Yahoo began discussing the possibility of an acquisition. A source says it came together very quickly, and that the entire deal happened in under one month.

Throughout the month, Marissa Mayer spent a lot of time with Karp and worked on the acquisition late into numerous evenings. “Marissa was very personally engaged in this deal,” says a source, who noted that Mayer had been looking broadly at other strategic acquisitions too. The amount of face-time and care Mayer put into the deal was part of what compelled Karp to sell his company to her.

Marissa Mayer proposed the accepted deal, $1.1 billion in cash, to Karp. Karp didn’t request an all-cash deal. Mayer simply didn’t offer Yahoo shares, likely because she believes they’re undervalued. The deal would have happened even if it hadn’t been all cash, the source says.

Karp did personally receive some shares of Yahoo, but that’s part of his retention plan. They’ll keep him working for Yahoo post-acquisition. 

Facebook also made a play for Tumblr, although it denies it now. “There was definitely interest expressed at a very senior level,” says a source, who didn’t comment on Tumblr and Facebook’s price conversations. 

On Friday, Tumblr held its weekly all-team meeting. It wasn’t a special meeting to discuss the potential acquisition despite the breaking rumours. Acknowledging the deal to employees would have been a breach of confidentiality Tumblr and its board agreed to with Yahoo. The was no employee sign-off on the acquisition. Instead, employees were told earlier this morning about the acquisition during a 10 AM meeting and via email.

As for the board meeting Yahoo held over the weekend, a source says one happened, but it wasn’t held to decide Tumblr’s fate. Yahoo had already decided to buy Tumblr before the meeting, and the meeting was more of a formality.

With Tumblr’s traffic flat-lining over the past few months, was Yahoo smart to pay $1.1 billion for Karp’s site? 

“I think this is going to be a smart deal,” a source says. “There’s a huge amount of traffic Tumblr is monetizing very modestly. Assuming Yahoo manages this well and appropriately, I think there is a ton of upside, no different for Yahoo than Google and YouTube.”

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