Will the New Oath Merger Break Verizon?

Verizon is coming together with AOL and Yahoo to create a new communications company called Oath. Tim Armstrong, AOL’s CEO, said that the new name would be used to describe the suite of businesses currently operating under the Verizon umbrella, while not diluting any of the individual brands. Unfortunately, the odd sounding name paired with an announcement slightly too close to April Fool’s Day, has left the markets cool to the idea. However, Yahoo will continue to take advantage of its great name recognition. That name will be used in marketing to the public.

Verizon announced plans to combine Yahoo and AOL into a new company called Oath.

AOL Is a Shadow of Its Former Greatness

Armstrong tried to spin the criticism surrounding the rebranding into a positive. He said that people only have strong opinions about companies they care about. Given the state of AOL and Yahoo, this passion does come as something as a surprise. Verizon bought AOL in 2015, for a reported sum of $4.4 billion. While an expert in an ongoing appraisal trial has testified that the company was undervalued at that time by more than $1.5 billion, its fortunes had definitely dropped from 2000, which is when AOL and Time Warner combined in a merger that still ranks as one of the worst in history. By 2002, AOL’s value had decreased from $226 billion down to $20 billion.

Marissa Mayer Sealed Yahoo’s Fate

Yahoo didn’t fare much better. After poaching CEO Marissa Mayer from Google in 2012, she proceeded to make a series of missteps which proved unrecoverable. The main problems were failing to decide Yahoo’s future, diversifying in directions that didn’t pay off while ignoring core services, and motivating by a bizarre combination of huge bonuses and autocratic bureaucracy which failed to build loyalty. Unsurprisingly, following recent security breach scandals and four years of losses, Verizon has not invited Mayer to join the new company.

Verizon Inherits a Wealth of Client Data from Yahoo

Not all analysts are pessimistic about the new company. There are still more than a billion customers using the services of one or more of the component brands. This presents a lot of opportunities for profit. The key to achieving profitability may lie in the data that people have given to the businesses over the years. Given the reach of the companies involved, Verizon now has access to the third largest targeted advertising network, beaten by only Google and Facebook.

Repeal of Internet Privacy Laws Helps Verizon’s Bottom Line

The timing of the rebranding couldn’t have been better for Verizon. The Republican-led Congress recently rolled back internet privacy laws. The original legislation would have made it more difficult to profit from information collected from user accounts. Now, the company has free reign to sell the data. But Yahoo clients in particular may be wary to give it up, thanks to fears about the company’s security protocols.

The Deal Does Not Include Every Yahoo Asset

The new deal will leave behind some parts of Yahoo in the restructuring. This includes its 15 percent share in retail giant Alibaba. The company is also spinning off its stake in Yahoo Japan, which Softbank helps manage. Yahoo has created a separate company for these holdings called Altaba. The main focus of the new entity will be to serve as an investment house for the capital of the component companies. The company’s stake in Alibaba alone is worth more than the value of the merger. The time frame for the new companies to debut is approaching.  Per the Securities and Exchange Commission (SEC) filings, the deal should be completed by the end of Q2 2017. If negotiations go past that time frame, the interested parties can either agree to an extension of three months, or they could seek to cancel the deal.

How Does the Deal between Verizon, AOL, and Yahoo Affect Trading?

Despite the jokes on behalf of the name, Verizon stands to make a huge profit by combining AOL and Yahoo. The company’s stock price should skyrocket once Oath is up and running as a brand. With the new advertising opportunities, Verizon, and other ISPs like Comcast should boost the DOW and S & P 500 higher as well. The increased commerce generated by targeted advertising campaigns based around the newly available consumer data should also benefit the U.S. economy, pushing the dollar higher.