Verizon Warns of $500M Hit From Yahoo Deal

Verizon's Big Red nickname looked more fitting than ever after the US telco flashed up a warning that it would take a $500 million pre-tax hit in the second quarter following its $4.5 billion takeover of Yahoo on June 13. (See Verizon Completes $4.5B Deal for Yahoo.)

Verizon Communications Inc. (NYSE: VZ) stuck the news in a filing with the US Securities and Exchange Commission that contained more boilerplate text than detail about the costs.

"In connection with the transaction, Verizon expects to record severance, acquisition and integration related expenses of approximately $500 million pre-tax in the second quarter of 2017," said the company. "Verizon expects to realize over $1 billion in cumulative operating expense synergies from the transaction through 2020."

The charges won't send Big Red into the red -- it reported net income of about $3.6 billion in the first quarter (a fifth less than in the year-earlier period, mind) -- but they will add to the gloom that surrounds the deal.

Details of historical data breaches at Yahoo Inc. (Nasdaq: YHOO) came to light after Verizon had agreed to buy the ailing web company last year, triggering speculation that Verizon would try to back out of the deal. It ended up paying $350 million less for Yahoo than it had originally proposed.

Verizon is now combining Yahoo with AOL, another ageing web property it acquired in 2015, and has christened the new-look venture Oath.

The $500 million hit relates to plans to cut about 2,100 jobs, or about 15% of Oath's entire workforce.

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Like rival operator AT&T Inc. (NYSE: T), which has its sights set on an $85 billion takeover of media giant Time Warner Inc. (NYSE: TWX), Verizon is trying to reinvent itself as a content and digital services company and even positioning Oath as an alternative to Facebook and Google (Nasdaq: GOOG). (See AT&T's $85B Time Warner Takeover Is a Media Game Changer.)

Oath's greatest assets are probably its 1.3 billion customers, who represent a potentially lucrative source of advertising revenues.

Verizon is said to be targeting about 2 billion customers at Oath by 2020.

— Iain Morris, , News Editor, Light Reading