Net Neutrality Sparks Telco Interest in Buying Yahoo! Mail

Marissa Mayer

With the FCC’s “Net Neutrality” policy undermining telecommunications companies’ business model, it looks like a bidding war may be spooling up for Yahoo!’s legacy email service.

Yahoo, Inc. (YHOO:NASDAQ) appears to be moving quickly to a sale of its Internet related services units, with the form of an Independent Board of Directors’ Committee and the hiring of three investment banks to engage with “potentially interested strategic and financial parties.”

Yahoo previously said in December that it was exploring a plan to spin off its core Internet-related services and emphasized at the time that the Yahoo was not interested in selling the entire company. But using the term “potentially interested parties” is Wall Street code for the idea that Yahoo has been approached by potential industry or private equity buyers–like Verizon, AT&T, Comcast or Fox.

The big telcos are natural buyers, after being the huge losers last year when the FCC reclassified broadband Internet access as a regulated telecommunications service under Title II of the Communications Act of 1934.

The February decision was celebrated by Silicon Valley corporations for giving the FCC authority to prevent Internet service providers from forcing customers, online sites, and internet-dependent services to pay for reliable access. The FCC’s Republican-appointed Commissioner Ajit Pai said that it was “sad to witness” Obama administration intrusion replacing Internet freedom with “government control.”

The U.S. Telecom Association (UTA) said in a brief filed as part of an April 2015 industry-wide lawsuit against the FCC that Internet service providers wouldn’t commit to deep investments for maintaining infrastructure if they had to comply with the “net neutrality” rules.

The Net Neutrality ruling has become a boon for potential litigation against broadband service providers. National Journal reported that over 2,000 complaints were filed against telecom companies in the first month after the Net Neutrality vote.

Facing years of waiting while the litigation works its way through the courts, Verizon Communications Inc.’s (VZ:NYSE) Chief Financial Officer Fran Shammo said in December that the top U.S. wireless carrier could look at buying Yahoo Inc.’s core business — which includes e-mail, its news and sports sites and advertising technology — if it turned out to be a good fit.

Verizon has already expanded into targeted advertising and mobile video by purchasing AOL Inc. in June 2015 for $4.4 billion. Four months later, Verizon launched “go90” as an ad-supported mobile video streaming service, supposedly targeting millennials.

CEO Marissa Mayer had planned to spin off Yahoo’s 15 percent state in Chinese Internet provider Alibaba, which was worth almost $32 billion in mid-2015. But with the IRS refusing to bless the spin-off as a tax free event, the company faced the risk of shareholders being fully taxed on the difference between the $7.6 billion Yahoo paid for the investment and the final sale price.

The Yahoo Board voted in September to continue holding Alibaba shares and spin off its core Internet related businesses. Although the “core” only generates about $3 billion in revenue, some analysts have estimated that the core Internet asset might be worth $6-8 billion.

With the announcement that Yahoo’s Internet core was up for sale, CEO Mayer said in a February 19 news conference that both shareholders and employees are committed to “return this iconic company to greatness.” She added, “We can best achieve this by working with the committee to pursue various strategic alternatives while, in parallel, aggressively executing our strategic plan to strengthen our growth businesses and improve efficiency and profitability.”

Yahoo, Inc. (YHOO:NASDAQ) stock was up about 2.8 percent to $30.90 a share at mid-day trading on Feb. 22.


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