Yahoo has made its exit as an independent company -- here's what happens next

On Monday, Yahoo agreed to sell its core internet business to Verizon for $4.8 billion, putting an end to its 20-year history as a standalone company.

The sale to Verizon drew nostalgic responses from Wall Street investors, including RBC Capital who characterised the deal as an “ignominious end for Yahoo, which used to be the Facebook or Google of the internet circa 1999.”

But despite the death knell-ringing headlines, Yahoo’s tumultuous storyline is far from reaching its end. The company’s internet products will continue to serve its billions of users, while its management still has a lot of work to do to figure out how to monetise its shares tied to Yahoo Japan and Alibaba, the crown jewels of Yahoo’s remaining assets.

Here’s a rundown of what to expect from Yahoo moving forward:

Yahoo’s core products: Yahoo’s core products will continue to exist under Verizon’s ownership. It may shut down some portals and smaller properties, but Yahoo’s focus on growing its search, mail, and various content verticals, like sports and finance, to create a bigger advertising platform will remain the same.

“For Verizon, this combination should create a powerful rival to Google and Facebook in mobile media, and an open, scaled alternative offering for advertisers and publishers. The Verizon/AOL/Yahoo combination will have more than 25 brands in the portfolio,” market research firm Cantor Fitzgerald wrote in a note.

Yahoo’s remaining assets: Once the Yahoo-Verizon deal is completed, Yahoo’s remaining assets, largely comprised of its stake in Alibaba and Yahoo Japan, will be owned by a new, renamed publicly traded company. Its ownership stake in those two companies is worth $40 billion but expect it to trade at a slight discount given the complexity in cashing out its value.

Yahoo Japan shares: The next logical step is for the remaining company, called Remain Co. for now, to find a way to monetise its Yahoo Japan stake. The most logical buyer would be Softbank, which already owns 43% of Yahoo Japan. But Softbank recently spent $32 billion to buy ARM, so a deal might be unlikely in the near term, according to SunTrust analyst Bob Peck.

If it can’t find a buyer, Remain Co. could cash out Yahoo Japan shares by issuing dividends or selling it in the open market, but tax issues and selling pressure could reduce its return, Peck says.

Alibaba assets: Once Remain Co. separates all Yahoo Japan shares, and is left with only Alibaba shares, it could be sold to another company without incurring any taxes for Yahoo, according to Peck. The most likely buyer would be Alibaba.

The problem is Remain Co., then basically an Alibaba subsidiary holding its own shares, could be treated as a “hook stock” that entitles the company to getting taxed twice.

Yahoo’s management also indicated on Monday that Remain Co. plans to hold on to its Alibaba shares “indefinitely” until it finds a way to sell it in a tax-free way.

Leadership: Yahoo’s core under Verizon will be led by AOL CEO Tim Armstrong. It’s unclear what role Yahoo CEO Marissa Mayer will play, although she said she plans to stay with the company.

For Remain Co., it’s unclear how it will be managed. Since it’s simply a holding company, it won’t need much day-to-day operations help, but it will need a final decision-maker on any transactions. It is assumed that Yahoo’s current board will make those decisions, in which case, Yahoo CEO Marissa Mayer, who’s on the board, will continue to be part of the decision-making group.

Financials: Verizon stopped disclosing AOL’s financials post-acquisition, so it’s likely that Yahoo will also stop reporting its numbers every quarter, once the deal is complete.

Workforce: Yahoo’s in the middle of a 15% workforce reduction plan that will lay off roughly 1,600 people by the end of the year. But Mayer said she could revisit the layoff plan
through the strategic alternative process,” and given Yahoo’s got a new owner, it could announce additional job cuts after the deal is complete.

SunTrust’s Bob Peck estimates that Yahoo could cut an additional 40% of its workforce under Verizon to cut all the overlapping positions, especially in sales and general operational jobs, which would help save almost $2 billion in total.

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