It’s official: Verizon is acquiring Yahoo’s core business for $4.83 billion.
The deal, announced Monday morning, will see the end of an era for Yahoo.
But in Verizon’s announcement of the deal, AOL CEO Tim Armstrong also uttered a word that comes up in many merger announcement and should have Yahoo employees anxious: synergies.
“We have enormous respect for what Yahoo has accomplished: this transaction is about unleashing Yahoo’s full potential, building upon our collective synergies, and strengthening and accelerating that growth,” Armstrong said. “Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers.”
In corporate speak, “synergies” is often used as short-hand for layoffs.
The maths on many corporate mergers is 1+1=3, or something approximating this (2.5ish will often do, though sometimes it ends up worse than this).
And so for example if company A has a big HR department and it buys company B, which also has a big HR department, a new, consolidated management structure will likely seek to get double the production out of half the employees.
And while not all departments at a company are likely to have redundancies that prove attractive for consolidation, words like “cost savings” and “synergies” are code for there being opportunities that investment bankers, advisers, or existing managers have identified as potentially opening the door to a leaner operation.
Of course, this deal isn’t all about firing people to save money. At heart, this deal is about Verizon building out its own advertising network. The main thing, then, that Verizon gets with Yahoo is the company’s ad tech and its existing scale.
This deal is also more or less the logical extension of Verizon’s $4 billion deal last year to acquire AOL, which is still run by Tim Armstrong, who Yahoo CEO Marissa Mayer worked with at Google back in the day. Yahoo and AOL, after all, are fairly similar, old-school, content-and-advertising internet businesses.
Yahoo (and AOL and Verizon) employees can also perhaps take solace in the vagueness of Armstrong’s reference to synergies. Contrast “collective synergies” with comments from past mergers, for example Sherwin-Williams and Valspar’s announced merger, which identified $280 million in initial synergies and targeted $320 million in long-term annual synergies.