A detailed timeline of how the Verizon-Yahoo deal went down
On July 25, 2016, Verizon Communications (VZ) announced it entered an agreement to buy the operating businesses of Yahoo (YHOO) for $4.8 billion.
However, this deal didnât just happen overnight. (Although there were many late nights as you will read.)
Back on December 9, 2015, Yahoo announced that it would suspend work on what couldâve been the spin-off of its stake in Alibaba (BABA). A few weeks later on January 15, Yahooâs board had a conference call with advisors at Goldman Sachs, JP Morgan, Bank of America Merrill Lynch, Skadden Arps and Wilson Sonsini to discuss what the company could do next. That call focused on the potential spin-off and sale of Yahooâs operating businesses.
With its quarterly earnings announcement on February 2, Yahoo announced it was considering âstrategic alternatives.â
A new proxy statement filed with the SEC offers some color on what followed: âOver the next several weeks, the Financial Advisors communicated with a total of 51 parties to evaluate their interest in a potential transaction. Between February 19 and April 6, 2016, a total of 32 parties signed confidentiality agreements with Yahoo, including 10 strategic parties and 22 financial sponsors. All of these potential bidders received access to a virtual data roomâŚâ
The five-month long process involved a variety of deal structures proposed and many of back-and-forths. The number of bids gradually fell, and in the final days it was either going to be Verizon or a party referred to as âSponsor B.â
But as time went on, the board also acknowledged the risks associated with the process going on for too long. From the evening of July 22 according to the proxy: âThe Board concluded that the risks of delaying signing a transaction with Verizon for an inferior offer from Sponsor B outweighed any potential benefit of pursuing further negotiations and noted that, in the proposed transaction with Verizon, the Board retained a customary âfiduciary outâ to pursue an unsolicited potentially superior proposal that emerged after signing the transaction agreements.â
From the late night hours of July 22 to the crack of dawn July 23, lawyers finalized the paperwork. And on the morning of July 23, Yahoo and Verizon signed the deal.
In a 6-page section of Yahooâs new proxy filing with the SEC, Yahoo lays out a detailed timeline of how the deal went down. See it below.
Disclaimer: Yahoo is the corporate parent of Yahoo Finance. Yahoo Finance covers Yahoo as it does any other large public company.
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Strategic Alternatives Process
Following the December 9, 2015 announcement, Yahooâs management and advisors continued to evaluate alternative transactions that would separate Yahooâs stakes in Alibaba and Yahoo Japan from its operating business.
On January 15, 2016, the Board held a telephonic meeting with members of management and representatives of Goldman Sachs, J.P. Morgan, BofA Merrill Lynch, Skadden, and Wilson Sonsini Goodrich & Rosati (âWilson Sonsiniâ), legal counsel to the Board, participating for portions of the meeting. Prior to these advisors joining the meeting, members of management presented and the Board approved a strategic operating plan, an earlier version of which had been discussed at the Boardâs December 2, 3, and 17, 2015 meetings, designed to simplify Yahooâs operating business, narrowing its focus on areas of strength to better fuel growth, drive revenue, and increase efficiency. In addition, representatives of Yahooâs financial advisors and Skadden presented the Board with potential strategic alternatives intended to achieve Yahooâs objectives of maximizing stockholder value and execution certainty while minimizing time to execution and transaction complexity. The Board and Yahooâs advisors discussed, among other factors, the feasibility, potential tax implications, and likely timing of these potential alternatives, focusing primarily on a reverse spin-off of Yahooâs operating business and a sale of that business to a third party, including certain variations of these primary alternatives.
Following the January 15 Board meeting and prior to the engagement of the Financial Advisors by the Strategic Review Committee, BofA Merrill Lynch was not requested to, and did not, provide any further financial advice to Yahoo or the Board and its engagement by Yahoo subsequently expired. BofA Merrill Lynch was engaged by Verizon in March 2016 in connection with Verizonâs participation in the strategic alternatives process described below.
On January 31, 2016, the Board met telephonically, with members of management and representatives of Goldman Sachs, J.P. Morgan, Skadden, and Wilson Sonsini participating. At the meeting, the Board, members of management and the advisors present at the meeting discussed the strategic alternatives of the reverse spin-off and a sale of Yahooâs operating business. The Board also authorized the formation of a special committee of the Board, named the Strategic Review Committee, to be composed of certain independent members of the Board, to consider and evaluate possible strategic transactions involving Yahooâs operating business and all matters pertaining thereto on Yahooâs behalf. The Strategic Review Committee was initially composed of Maynard G. Webb, Jr., who served as Chairman, H. Lee Scott, Jr., and Thomas J. McInerney. The Board resolved that it would not approve or recommend to Yahooâs stockholders for approval any strategic transaction related to Yahooâs operating business without a prior favorable recommendation of such transaction by the Strategic Review Committee. The Strategic Review Committee was further authorized to retain, at Yahooâs expense, such outside counsel, financial advisors, and other outside advisors as the Strategic Review Committee deemed appropriate to assist in its prescribed duties.
Following the Board meeting, the Strategic Review Committee retained Cravath, Swaine & Moore LLP (âCravathâ) as its legal counsel.
On February 2, 2016, concurrently with its announcement of its quarterly and annual financial results for the periods ended December 31, 2015, Yahoo issued a press release announcing its strategic operating plan, which included exploring certain non-strategic asset divestitures. In that press release, Yahoo also indicated that, in addition to continuing to work on a reverse spin-off transaction, the Board would also explore other strategic alternatives for separating Yahooâs operating business from its Alibaba Shares.
In the days following the February 2, 2016 announcement, Goldman Sachs and J.P. Morgan, as well as members of the Board and Yahooâs management team, received general indications of interest in investments in or acquisitions of all or part of Yahooâs operating business from numerous parties, including a senior executive of Verizon approaching Mr. Webb to express Verizonâs interest in a potential transaction with Yahoo. In addition, after Marissa A. Mayer, Yahooâs Chief Executive Officer and President, acting with approval of the Strategic Review Committee, had contacted representatives of both Yahoo Japan and SoftBank, the controlling shareholder of Yahoo Japan, to inform them that Yahoo was exploring strategic alternatives, a senior executive of SoftBank approached Ms. Mayer to request a meeting to discuss a potential transaction involving Yahoo and Yahoo Japan, subject to Yahoo committing to a 30-day exclusivity period. The Strategic Review Committee was kept informed of each of these indications of interest.
On February 4, 2016, the Strategic Review Committee held a telephonic meeting. Representatives of Cravath reviewed with the members of the Strategic Review Committee their fiduciary duties and other relevant legal considerations, as well as the scope of the authority delegated to the Strategic Review Committee by the Board. The Strategic Review Committee identified a number of investment banks as potential financial advisors to assist it in carrying out its responsibilities. Because the parties potentially interested in acquiring Yahooâs operating business included financial sponsors, the Strategic Review Committee also advised members of management not to engage in any discussions with interested parties about terms of employment, co-investment, or rollover of equity unless first discussed and authorized by the Strategic Review Committee.
On February 10, February 11, February 12, and February 15, 2016, the Strategic Review Committee held telephonic meetings, with representatives of Cravath participating, during which the Strategic Review Committee considered whether to engage one or more of the investment banks (including Goldman Sachs and J.P. Morgan) that the Strategic Review Committee had identified as potential financial advisors at its February 4, 2016 meeting and subsequently interviewed. The Strategic Review Committee considered the capabilities and experience of the various candidates that it met and reviewed the disclosures provided by the investment banks regarding certain relationships they had with potential bidders for Yahoo or its assets, Yahoo and other parties with whom Yahoo had significant relationships. After considering the information provided by the investment banks in their disclosures and during their interviews, the Strategic Review Committee decided to engage Goldman Sachs and J.P. Morgan, each of which was familiar with Yahoo based on its prior work for Yahoo, including with respect to the suspended Aabaco spin-off and the potential reverse spin-off, and PJT Partners LP (âPJT Partnersâ), which had not previously worked with Yahoo, as its financial advisors. Goldman Sachs, J.P. Morgan, and PJT Partners are referred to as the âFinancial Advisors.â
On February 12, 2016, the Board met and discussed the progress of the Strategic Review Committee, including its selection of financial and legal advisors.
Outreach to Potential Bidders
After engaging each of the Financial Advisors, the Strategic Review Committee directed the Financial Advisors to begin reaching out to potential interested parties, including those parties that had contacted representatives of Yahoo, Goldman Sachs, and J.P. Morgan about a potential transaction following the February 2, 2016 earnings announcement, to evaluate their interest in a potential transaction involving Yahoo or its assets.
On February 19, 2016, the Strategic Review Committee updated the Board on its progress. Mr. Webb informed the Board that the Strategic Review Committee had met numerous times and explained its recent activities, including the engagement of, and commencement of work with, the Financial Advisors. He also outlined the outreach process, including work underway by management to prepare a management presentation and potential timing for meetings with interested parties.
Also on February 19, 2016, Yahoo issued a press release announcing the formation of the Strategic Review Committee and that the Strategic Review Committee had engaged the Financial Advisors and Cravath as the Strategic Review Committeeâs financial advisors and legal counsel, respectively.
Over the next several weeks, the Financial Advisors communicated with a total of 51 parties to evaluate their interest in a potential transaction. Between February 19 and April 6, 2016, a total of 32 parties signed confidentiality agreements with Yahoo, including 10 strategic parties and 22 financial sponsors. All of these potential bidders received access to a virtual data room, which initially included a management presentation (which included three years of forecasted financial information for Yahoo which had previously been reviewed by the Board) and publicly available documents but was later updated with customary due diligence materials and was further updated regularly throughout the strategic alternatives process in response to due diligence questions and requests from potential bidders.
The Strategic Review Committee discussed the ongoing outreach process with representatives of the Financial Advisors and Cravath at telephonic meetings held on February 25 and March 3, 2016.
On February 25, 2016, Mr. Webb and Ms. Mayer met with representatives of SoftBank. At the February 25 meeting, Mr. Webb and Ms. Mayer received a letter from Yahoo Japan to the Board, dated February 25, 2016, setting forth the material terms of a non-binding proposal for a merger of equals transaction between Yahoo and Yahoo Japan. Yahoo Japanâs proposal, which was subject to due diligence, negotiation of final documentation, and approval by Yahoo Japanâs board of directors, contemplated that Yahooâs existing stockholders would receive a 50 percent stake in the combined entity and approximately $14.0 billion in cash, reflecting an equity value for Yahoo of $29.05 per fully diluted Yahoo share. Yahoo Japanâs proposal also contemplated a commitment by Alibaba to purchase approximately 50 percent of Yahooâs stake in Alibaba in six equal annual installments over a six-year period commencing one year after the closing of the transaction. The letter was not signed or acknowledged in writing by Alibaba. The letter conditioned further discussions regarding the proposal on Yahooâs entry into a 30-day exclusivity agreement on or before March 1, 2016.
On February 26 and February 29, 2016, the Strategic Review Committee held telephonic meetings, with representatives of Cravath and, for certain portions, certain representatives of one of the Financial Advisors and Ms. Mayer participating, to discuss the non-binding proposal set forth in Yahoo Japanâs letter. The Strategic Review Committee subsequently received advice with respect to the Yahoo Japan proposal from each of the Financial Advisors. The Strategic Review Committee considered, among other things, the fact that Yahoo Japanâs proposal offered no premium for Yahooâs shares and that the contemplated repurchase by Alibaba of a portion of its shares would be fully taxable. Members of the Strategic Review Committee also discussed Yahoo Japanâs proposal, and the Strategic Review Committeeâs views with respect to such proposal, with each other member of the Board. After careful consideration, the Strategic Review Committee concluded that the terms described in Yahoo Japanâs letter were not compelling and that Yahoo should not enter into the proposed exclusivity agreement, but the Strategic Review Committee would be open to continuing a dialogue with SoftBank and Yahoo Japan about a potential transaction on more attractive terms. After the Strategic Review Committeeâs position was communicated orally to SoftBank by a representative of one of the Financial Advisors, SoftBank and Yahoo Japan each declined to enter into a confidentiality agreement in connection with the strategic alternatives process and did not thereafter participate in such process.
On March 8, 2016, Mr. Scott resigned from the Strategic Review Committee given his other responsibilities, including as Chairman of Yahooâs Nominating and Corporate Governance Committee. At a Board meeting on the same day, Catherine J. Friedman and Eric K. Brandt were appointed as independent directors of Yahoo to fill vacancies created by the recent resignations of two independent directors. The Board also appointed Mr. Brandt to replace Mr. Scott on the Strategic Review Committee.
On March 9 and March 14, 2016, the Strategic Review Committee held telephonic meetings and discussed with its advisors the status of the strategic alternatives process. At the March 14 meeting, the Strategic Review Committee also discussed potential approaches to the Excalibur IP Assets in relation to the strategic alternatives process with a view to most effectively monetizing those assets. The Strategic Review Committee subsequently decided to pursue a separate sale process for the Excalibur IP Assets and to permit bidders for Yahooâs operating business to participate in the Excalibur IP Assets process as well.
On March 14, 2016, the Board met telephonically, with members of management and representatives of Wilson Sonsini and Cravath participating, to discuss with members of the Strategic Review Committee the proposed management presentation and forecasted financial information to be included in the presentation.
Between March 18 and April 1, 2016, seven potential interested parties, including Verizon, each attended separate half-day in-person management presentations at Skaddenâs Palo Alto offices. These potential interested parties were previously selected by the Strategic Review Committee and its advisors as the initial group to receive management presentations based on, among other things, the level of interest they had shown in the process and their perceived viability as potential buyers. The presentations were given by Yahooâs management team, including, among others, Ms. Mayer, Ken Goldman (Chief Financial Officer), Ronald S. Bell (General Counsel and Secretary), and Ian Weingarten (Senior Vice President, Corporate Development and Partnerships).
On March 22, 2016, the Strategic Review Committee held a telephonic meeting and reviewed with representatives of Cravath drafts of the engagement letters negotiated with each of the Financial Advisors. Each of the Financial Advisors executed engagement letters with Yahoo, dated March 23, 2016, with respect to its role as a financial advisor to the Strategic Review Committee.
On March 22, 2016, the Board met telephonically, with members of management and a representative of Wilson Sonsini participating, to discuss with members of the Strategic Review Committee the management presentations that were recently made to potential bidders.
During the period from March 23 through April 6, 2016, at the direction of the Strategic Review Committee, the Financial Advisors sent process letters to potential bidders that had executed confidentiality agreements. These process letters set forth guidelines for the submission of a preliminary non-binding indication of interest in the acquisition of or strategic investment in one or more of Yahooâs assets and established April 11, 2016 as the deadline to submit such preliminary non-binding indications of interest. The process letters noted, among other things, that Yahoo was open to considering proposals for Yahooâs operating business or its principal non-operating assets, as well as for the whole company.
On March 24 and March 31, 2016, the Strategic Review Committee held telephonic meetings, with representatives of the Financial Advisors and Cravath participating, to discuss, among other things, the in-person management presentations to date and the response of the initial group of potential bidders that attended such presentations. The Strategic Review Committee subsequently decided, in consultation with Yahooâs management, that, given the number of additional interested parties and taking into account managementâs time, an audio recording of the management presentation would be made available to the interested parties that were not invited to attend in-person management presentations.
On March 24, 2016, Yahoo received notice from Starboard of its intention to nominate nine persons, including Tor R. Braham, Eddy W. Hartenstein, Richard S. Hill, and Jeffrey C. Smith, for election to Yahooâs Board at its 2016 annual meeting of stockholders and to solicit proxies from stockholders in support of its nominees.
From April 1 through April 8, 2016, a total of 19 interested parties that had signed confidentiality agreements with Yahoo attended audio recorded management presentations at the offices of Cravath, in New York, Skadden, in New York or Palo Alto, or certain of the Financial Advisorsâ offices. All potential bidders who attended either an in-person or audio recorded management presentation were invited to participate in individualized follow-up question-and-answer sessions with Yahooâs management team, including Ms. Mayer and Mr. Goldman.
Beginning on April 4, 2016, and on most weekdays thereafter until Yahoo and Verizon entered into the Stock Purchase Agreement, the Strategic Review Committee held a standing daily call with members of Yahooâs management team, including Ms. Mayer, Mr. Goldman, Mr. Bell, and Mr. Weingarten, and with representatives of the Financial Advisors, Cravath, Skadden, and Wilson Sonsini.
On April 5 and April 7, 2016, the Strategic Review Committee held telephonic meetings, with representatives of the Financial Advisors and Cravath, and, for the April 7 meeting, Skadden participating, and discussed, among other things, feedback from potential bidders and the process for the Strategic Review Committeeâs review of the initial indications of interest. The Strategic Review Committee decided to extend the due date for preliminary indications of interest to April 18, 2016. At the April 7 meeting, a representative of Skadden also presented potential structures for separating Yahooâs operating business from its other assets in connection with a potential transaction. Although the Strategic Review Committee was primarily focusing on the auction process at this time, it was noted that much of the work relating to the potential separation structures would also apply to a reverse spin-off if the Board chose to pursue such a transaction.
Throughout April until April 18, 2016, the potential bidders continued to engage in extensive due diligence discussions with Yahooâs management team, with the assistance of the Financial Advisors, and to request and receive due diligence updates to the virtual data room.
On April 11, 2016, a strategic party referred to as âStrategic Party Aâ submitted a preliminary non-binding proposal providing for a $1.0 billion to $2.0 billion strategic investment in Yahoo, after which Yahooâs operating business would be spun off. After consideration of the proposal and discussion with its advisors, the Strategic Review Committee determined not to pursue it at that time, pending completion of the sale process.
At a Board meeting held at Yahooâs Sunnyvale headquarters on April 13 and April 14, 2016, members of the Strategic Review Committee and representatives of the Financial Advisors updated the Board on the status of the strategic alternatives process. The Board also discussed with Skadden and Cravath the proposed transaction structure of a sale of Yahooâs operating business.
On April 18, 2016, 14 parties (in addition to Strategic Party A), including three strategic bidders and 11 financial sponsor bidders, submitted preliminary non-binding indications of interest with respect to a transaction with Yahoo. Ten of these proposals contemplated an acquisition of Yahooâs operating business on a cash-free, debt-free basis (alone or in conjunction with certain of Yahooâs other assets) for enterprise values as follows:
⢠proposals that assumed that both the Excalibur IP Assets and a parcel of owned real estate located in Santa Clara, California (the âExcluded Real Estateâ) would be included in the transaction from a financial sponsor referred to as âSponsor Aâ ($7.5 to $8.0 billion) and from Verizon ($3.75 billion);
⢠proposals that assumed that the Excalibur IP Assets (but not the Excluded Real Estate) would be included in the transaction from a strategic party referred to as âStrategic Party Bâ ($4.5 billion), and a financial party that owns a strategic asset referred to as âSponsor Bâ ($5.0 to $5.5 billion); and
⢠proposals that assumed that neither the Excalibur IP Assets nor the Excluded Real Estate would be included in the transaction from financial sponsors referred to as âSponsor Câ and âSponsor D,â which were working together with the prior consent of the Strategic Review Committee ($5.5 billion), and five other financial sponsors, which are referred to as âSponsor E,â âSponsor F,â âSponsor G,â âSponsor H,â and âSponsor I,â respectively ($6.0 billion, $5.0 billion, $5.7 billion, $5.0 to $6.0 billion, and $4.51 billion, respectively).
The remaining four indications of interest included:
⢠a proposal from a financial sponsor that owned a controlling interest in an Internet company for a Reverse Morris Trust transaction in which Yahooâs operating business would be spun off and then merged with the smaller Internet company owned by the financial sponsor, the terms of which were based on an indicated enterprise value of $4.379 billion for Yahooâs operating business;
⢠an oral offer from a bidding group consisting of two financial sponsors to acquire Yahooâs operating business for $2.0 billion;
⢠a proposal to acquire Yahooâs operating business for $3.0 to $4.0 billion from a group of private equity bidders that had declined to enter into a confidentiality agreement and therefore had not participated in the first-round due diligence process; and
⢠an indication of interest from a financial sponsor that did not specify an enterprise value or value range and offered to support a third-party transaction.
None of the initial indications of interest received in the process contemplated an acquisition of Yahoo in its entirety.
Between April 18 and April 21, 2016, at the direction of the Strategic Review Committee, representatives of the Financial Advisors contacted the potential bidders, including Verizon, that had submitted proposals contemplating an acquisition of Yahooâs operating business on a cash-free, debt-free basis to clarify the terms of, and to obtain additional information with respect to, their proposals.
Between April 19 and April 21, 2016, each of the Financial Advisors provided the Strategic Review Committee with updated disclosures regarding certain of its relationships with the potential bidders.
On April 20 and April 21, 2016, the Strategic Review Committee held telephonic meetings, with representatives of the Financial Advisors and Cravath participating, to review and evaluate the first-round proposals and to discuss which bidders would be invited to the next round of the strategic alternatives process. Representatives of Cravath reviewed with members of the Strategic Review Committee their fiduciary duties and other relevant legal considerations. Representatives of the Financial Advisors presented to the Strategic Review Committee their preliminary financial analyses of the initial indications of interest and described their discussions with each potential bidder, including their views on each bidderâs financial capacity to close a transaction, industry experience, level of engagement in the process, and other factors affecting whether to invite such bidder into the next round of the process. The Strategic Review Committee also determined not to pursue any of the initial indications of interest contemplating alternative transaction structures, which involved additional complexities and contingencies, concluding that pursuing a sale of Yahooâs entire operating business through a competitive auction process offered a better chance of maximizing value for Yahoo stockholders and noting the potential to revisit such proposed alternative structures in the future.
Following the Strategic Review Committee meeting on April 20, 2016, the Strategic Review Committee and representatives of the Financial Advisors and Cravath participated in a call with members of Yahooâs management team to discuss the first-round proposals and the Strategic Review Committeeâs analysis of these proposals and to obtain managementâs input.
On April 21, 2016, Yahoo entered into a purchase agreement to sell the Excluded Real Estate. Yahoo completed the sale of the Excluded Real Estate for total proceeds of $246 million, net of closing costs of $4 million, on June 16, 2016.
On April 22, 2016, the Board held a telephonic meeting, with members of management and representatives of the Financial Advisors, Cravath, Skadden, and Wilson Sonsini participating, during which members of the Strategic Review Committee and representatives of its advisors discussed with the other directors the first-round proposals and the Financial Advisors presented preliminary financial analyses of Yahoo and its assets.
Later on April 22, 2016, the Strategic Review Committee had a meeting, with representatives of the Financial Advisors, Cravath, and Skadden participating. The Strategic Review Committee decided to invite into the next round of the process nine bidders that had submitted initial indications of interest: Verizon, Strategic Party B, the Sponsor C / Sponsor D bidding group, Sponsor A, Sponsor B, a bidding group consisting of Sponsor E and Sponsor F, which, at the recommendation of the Strategic Review Committee to enable them to submit a more competitive bid, were working together, Sponsor G, Sponsor H, and Sponsor I. On behalf of the Strategic Review Committee, the Financial Advisors invited these bidders into the next round of the strategic alternatives process.
From April 23 until July 18, 2016, numerous due diligence meetings and calls were held among representatives of Yahoo and its advisors, the potential bidders, including Verizon, and their advisors, and the Strategic Review Committeeâs advisors. During this period, additional documents were posted to the virtual data room, including in response to potential biddersâ due diligence requests.
On April 26, 2016, Yahoo entered into the Starboard Settlement Agreement with Starboard and certain of Starboardâs affiliates to settle the proxy contest pertaining to the election of directors at Yahooâs 2016 annual meeting. Pursuant to the Starboard Settlement Agreement, the Board appointed Messrs. Braham, Hartenstein, Hill, and Smith to the Board effective April 26, 2016, and Yahoo agreed to nominate the Starboard designees for election to the Board at the 2016 annual meeting. Also pursuant to the Starboard Settlement Agreement, Mr. Smith was appointed to the Strategic Review Committee in place of Mr. Webb, and Mr. McInerney became chair of the Strategic Review Committee. However, as provided by the Starboard Settlement Agreement, Mr. Webb was invited to continue to attend, and participate in, all Strategic Review Committee meetings. Thereafter, Mr. Webb attended most meetings of the Strategic Review Committee. The Starboard Settlement Agreement also required Yahoo to submit to a stockholder vote any decision recommended by the Strategic Review Committee and approved by the Board to sell Yahooâs operating business or any similar transaction.
Between April 28 and May 17, 2016, representatives of each of the remaining potential bidders, including Verizon, and their advisors participated in meetings with Yahooâs management, including Ms. Mayer, Mr. Goldman, Mr. Bell, Lisa Utzschneider (Chief Revenue Officer), and Mr. Weingarten, at its Sunnyvale headquarters as part of their due diligence. Also during this period, certain bidders, including Verizon, requested and subsequently participated in calls and meetings with representatives of Yahoo, Skadden, and Cravath to discuss issues related to legal and financial considerations with respect to the transaction, including considerations relating to Yahooâs capitalization structure.
On May 2, 2016, at Verizonâs request, Mr. Webb met with Lowell McAdam, Chairman and Chief Executive Officer of Verizon. During the meeting Mr. McAdam discussed Verizonâs interest in a potential transaction involving Yahooâs operating business. Mr. Webb suggested that Verizon raise any specific issues with the Strategic Review Committee and its advisors.
On May 5, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors, Cravath, and Skadden participating, during which the representatives of Skadden and Cravath reviewed with the Strategic Review Committee the key proposed terms of the initial drafts of the purchase agreement and reorganization agreement prepared by Skadden in consultation with Cravath.
On May 11, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors and Cravath participating, during which the representatives of Cravath reviewed with the Strategic Review Committee revised drafts of the purchase agreement and reorganization agreement prepared by Skadden, and the Strategic Review Committee discussed the timeline for the next round of the process, including a potential interim bid date of June 6, 2016.
On May 12, 2016, after the Strategic Review Committee interviewed several prospective intellectual property advisors and discussed them with members of Yahooâs intellectual property team and Mr. Bell. Yahoo, on behalf of the Strategic Review Committee, entered into an engagement letter with Black Stone IP, LLC as an advisor in connection with a possible transaction to monetize the Excalibur IP Assets, either with a buyer of Yahooâs operating business or another third party.
Also on May 12, 2016, initial drafts of the purchase agreement and the reorganization agreement were made available to potential bidders through the virtual data room. To minimize the liabilities that would be retained by Yahoo post-closing, the initial draft purchase agreement was structured similar to a typical purchase agreement in a public company acquisition, with no post-closing indemnity by Yahoo and limited closing conditions. In addition, the initial draft purchase agreement provided, in the case of a strategic buyer, that Yahooâs unvested employee equity awards would be assumed or substituted for comparable buyer equity awards, and, in the case of a financial sponsor buyer, that these awards would be accelerated at closing. The draft purchase agreement also provided that Yahoo would be required to pay the buyer a termination fee equal to 2.5 percent of the base purchase price if, among other reasons, the purchase agreement was terminated by the purchaser after the Board changed its recommendation for the transaction or by Yahoo to accept a superior proposal (the âYahoo termination feeâ), and, in the case of a financial sponsor buyer, that Yahoo would be entitled to a reverse termination fee equal to 7.5 percent of the base purchase price if the buyer did not consummate the transaction as a result of its debt financing not being available (the âreverse termination feeâ), and to specific performance if the buyerâs debt financing was available.
On May 13, 2016, the Financial Advisors provided each of the nine remaining bidders with a process letter setting forth the process and guidelines for the submission of interim non-binding proposals for the acquisition of Yahooâs operating business and establishing June 6, 2016 as the due date for interim proposals. The process letter instructed bidders to submit as part of their interim proposals a list of the key issues they had identified in the draft transaction agreements. Bidders were instructed to assume that the transaction would exclude the Excalibur IP Assets and that any sale of the Excalibur IP Assets would be subject to a royalty-free license to the Excalibur IP Assets solely for the benefit of Yahooâs operating business.
On May 19, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors and Cravath participating, to discuss the feedback received from bidders and to receive an update on the ongoing due diligence process.
Between May 20 and May 30, 2016, representatives of Cravath, Skadden, and the Financial Advisors participated in calls with representatives of certain of the remaining bidders, including Verizon, and their respective legal counsel, to discuss their approach to the ongoing strategic alternatives process and the transaction agreements. The representatives of the Strategic Review Committeeâs advisors and Skadden stressed that, in addition to focusing on value, the Strategic Review Committee was seeking proposals that would provide high certainty of closing and leave the post-closing entity with limited liabilities unrelated to the assets retained by Yahoo.
During the week of May 23, 2016, with the approval of the Strategic Review Committee, representatives of each of Verizon and Strategic Party B met separately with Yahooâs management team, including Ms. Mayer, Mr. Goldman, Mr. Bell, and Mr. Weingarten, at its Sunnyvale headquarters to discuss potential revenue and cost synergies as part of their due diligence investigation.
On May 24, May 26, and May 27, 2016, the Strategic Review Committee held telephonic meetings, with representatives of the Financial Advisors and Cravath participating, to discuss the progress of the strategic alternatives process and feedback received from the bidders.
On May 31, 2016, the Board held a meeting, with members of management and representatives of the Financial Advisors, Cravath, Skadden, and Wilson Sonsini participating, at which the Board received an update on the strategic alternatives process, including the key terms of the initial drafts of the purchase agreement and reorganization agreement, the status of the biddersâ due diligence, and the proposed schedule for the remainder of the strategic alternatives process. They also described the status of a process to potentially sell the Excalibur IP Assets.
Also on May 31, 2016, Yahoo and Excalibur entered into a patent assignment, pursuant to which, among other things, Yahoo assigned to Excalibur all right, title, and interest to the Excalibur IP Assets. Concurrently, Yahoo and Excalibur entered into a patent license agreement, pursuant to which, among other things, Excalibur granted to Yahoo and certain affiliates a non-exclusive license under the Excalibur IP Assets solely for the Yahoo operating business.
Between May 23, 2016 and June 2, 2016, representatives of Sponsor G, Sponsor H, and Sponsor I communicated to representatives of the Financial Advisors that they were withdrawing from the process.
On June 2, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors and Cravath participating, to discuss the process for review of the second-round bids due on June 6, 2016.
On June 3, at Sponsor Bâs request, Mr. Webb met with representatives of Sponsor B. During the meeting the representatives of Sponsor B discussed Sponsor Bâs interest in a potential transaction involving Yahooâs operating business. Mr. Webb suggested that Sponsor B raise any specific issues with the Strategic Review Committee and its advisors.
On June 6, 2016, Yahoo received non-binding interim proposals to acquire Yahooâs operating business, including lists of the key issues identified in the draft transaction agreements, from each of Verizon, Strategic Party B, the Sponsor C / Sponsor D bidding group, Sponsor A, Sponsor B, and the Sponsor E / Sponsor F bidding group. The six interim proposals included the following base purchase prices and key terms, among others:
⢠Verizon proposed a $3.85 billion base purchase price. Its proposal contemplated that (i) the Excalibur IP Assets would be excluded from the acquired assets, but a royalty-free license to the Excalibur IP Assets would be granted for the benefit of Verizon and its current and future affiliates, (ii) Verizon would substitute cash-settled restricted stock units having equivalent value for unvested Yahoo RSU awards, but Yahoo would bear 50 percent of the cost of the Yahoo RSU awards and Verizon would not assume or grant options in substitution for any Yahoo options, (iii) Yahoo would indemnify Verizon for breaches of representations and warranties under the purchase agreement, and (iv) the Yahoo termination fee would be 4 percent of the base purchase price.
⢠Strategic Party B proposed a $3.75 billion base purchase price. Its proposal contemplated that (i) the Excalibur IP Assets would be included in the acquired assets, (ii) Strategic Party B would issue Strategic Party B restricted stock units and options having equivalent value for unvested Yahoo RSU awards and unvested Yahoo options, respectively, (iii) Yahoo would indemnify the buyer for breaches of representations and warranties under the purchase agreement, and (iv) the Yahoo termination fee would be five percent of the base purchase price.
⢠Sponsor A proposed a $5.0 billion base purchase price if the Excalibur IP Assets and certain minority investments were included in the acquired assets or a $4.7 billion base purchase price if the Excalibur IP Assets and certain minority investments were excluded from the acquired assets. Its proposal contemplated that (i) the cost of Yahoo equity awards would generally be retained by Yahoo, (ii) there would be no indemnification for breaches of representations and warranties under the purchase agreement, (iii) the Yahoo termination fee would be 3.5 percent of the base purchase price, and (iv) the reverse termination fee would be 5 percent of the base purchase price, with Yahoo being entitled to specific performance if the debt financing was available.
⢠Sponsor B proposed a base purchase price of $4.0 billion to $4.5 billion. Its proposal contemplated that (i) the Excalibur IP Assets would be included in the acquired assets, (ii) the cost of Yahoo equity awards would generally be retained by Yahoo, (iii) there would be no indemnification for breaches of representations and warranties under the purchase agreement, and (iv) the sole termination remedies would be liquidated damages in amounts to be negotiated, with no provision for specific performance.
⢠The Sponsor C / Sponsor D bidding group proposed a $2.75 billion base purchase price. This proposal contemplated that (i) the Excalibur IP Assets would be excluded from the acquired assets and (ii) Yahoo would retain the cost of equity awards. The Sponsor C / Sponsor D bidding group did not submit a list of key issues identified in the draft transaction agreements.
⢠The Sponsor E / Sponsor F bidding group proposed a $5.25 billion base purchase price. This proposal contemplated that (i) the Excalibur IP Assets would be excluded from the acquired assets, (ii) the cost of Yahoo equity awards would generally be retained by Yahoo, (iii) there would be no indemnification for breaches of representations and warranties under the purchase agreement, but the buyer would purchase representation and warranty insurance at Yahooâs cost, and (iv) Yahoo would be entitled to specific performance if the debt financing was available and the buyer failed to consummate the closing when required; otherwise, a reverse termination fee of an unspecified amount would be the remedy.
Between June 6 and June 8, 2016, representatives of the Financial Advisors had numerous discussions with the six bidders who submitted second-round proposals to clarify the terms of and obtain additional information with respect to their proposals, including the reasons for any significant changes from the valuations they had provided in their initial indications of interest.
On June 8, 2016, the Strategic Review Committee met, with representatives of the Financial Advisors and Cravath participating, to review the interim proposals, including the biddersâ issues lists and the additional feedback received from the bidders, and to discuss next steps. Representatives of the Financial Advisors provided an overview of the second round of the strategic alternatives process and provided their preliminary financial analyses of the interim proposals. Representatives of Cravath reviewed with the Strategic Review Committee the transaction agreement issues lists submitted by the bidders. The Strategic Review Committee preliminarily decided that, because the price offered by the Sponsor C / Sponsor D bidding group was significantly lower than the prices indicated in the other biddersâ proposals, and representatives of the Sponsor C / Sponsor D bidding group had indicated that they did not expect further due diligence or partnering opportunities would meaningfully change their valuation, the Sponsor C / Sponsor D bidding group would not be invited to the next round of the strategic alternatives process.
On June 9, 2016, the Strategic Review Committee and representatives of the Financial Advisors and Cravath participated in a conference call with Mr. Webb, certain members of Yahoo management, including Ms. Mayer and Mr. Bell, and representatives of Skadden and Wilson Sonsini to review the interim proposals.
On June 10, 2016, the Board held a telephonic meeting, including certain members of management, to discuss the interim proposals and other matters discussed at the Strategic Review Committeeâs June 8, 2016 meeting. Representatives of the Financial Advisors, Cravath, and Skadden provided the Board with an overview of the interim proposals and the Financial Advisors presented their analyses of each of the bids. Following the Board meeting, and taking into account the Boardâs discussion and direction, the Strategic Review Committee decided to invite to the next round of the strategic alternatives process each of the remaining five bidders: Verizon, Strategic Party B, Sponsor A, Sponsor B, and the Sponsor E / Sponsor F bidding group. At the Strategic Review Committeeâs direction, the Financial Advisors communicated the Strategic Review Committeeâs decision to the bidders and began to arrange calls to provide the bidders and their advisors with feedback on their transaction agreements issues lists.
On June 12 and 13, 2016, Yahoo uploaded revised transaction agreements and draft disclosure schedules, respectively, to the virtual data room, reflecting the corporate structure of Yahoo Holdings.
On June 13, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors and Cravath participating, to discuss the biddersâ ongoing due diligence requests and discuss certain issues relating to the transaction agreements.
Between June 13 and June 19, 2016, representatives of Skadden and Cravath held conference calls with representatives of each of the remaining bidders, including their legal advisors, during which the representatives of Skadden and Cravath provided feedback to each of the bidders on the transaction agreement issues lists they had submitted with their interim bids. The Strategic Review Committeeâs advisors also advised the bidders that mark-ups of the transaction agreements would be due on June 20, 2016, and, for financial bidders, near-final drafts of debt commitment letters would be due on June 30, 2016.
On June 16, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors and Cravath participating, at which the Financial Advisors updated the Strategic Review Committee on, among other things, the feedback received from each of the bidders regarding remaining due diligence items and their expected timing for completion of their due diligence review. The Strategic Review Committee expressed a desire for bidders to be guided to submit final mark-ups of the transaction agreements that would enable Yahoo to be in a position to enter into definitive transaction agreements with the winning bidder as soon as possible after final bids were received.
Between June 20 and June 24, 2016, each of the remaining five bidders submitted initial mark-ups of the transaction agreements. Verizonâs mark-up of the purchase agreement improved certain of the terms previously indicated in the issues list it submitted on June 6, 2016. In particular, Verizonâs mark-ups did not contemplate indemnification for breaches of representations, warranties, and pre-closing covenants under the purchase agreement (although it did include indemnification for pre-closing taxes) and provided that Verizon would assume the full cost of unvested Yahoo RSU awards. The mark-ups submitted by Strategic Party B, Sponsor A, Sponsor B, and Sponsor F were generally consistent with the key issues lists previously submitted by those bidders.
On June 24, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Financial Advisors, Cravath, and Skadden participating, to discuss issues raised by the transaction agreement mark-ups the bidders had submitted. The Strategic Review Committee also discussed the timeline for the remainder of the sale process.
Interim Mark-Ups and Final Proposals
On June 21, 2016, principals of Sponsor E and Sponsor F informed Mr. McInerney and representatives of one of the Financial Advisors that Sponsor E intended to withdraw from the auction process, but that Sponsor F continued to be interested in acquiring Yahooâs operating business and wished to remain in the process. In the following days, members of the Strategic Review Committee and representatives of the Financial Advisors had numerous discussions with principals of Sponsor F to discuss whether it was feasible for Sponsor F to obtain equity financing without Sponsor Eâs participation. Based on these discussions, the Strategic Review Committee ultimately determined to permit Sponsor F to remain in the process.
Between June 26 and July 1, 2016, representatives of Skadden, Cravath, and the Financial Advisors participated in conference calls with representatives of each of the five remaining bidders to provide them with initial feedback on their mark-ups of the transaction agreements submitted the previous week, as well as to obtain clarification from the bidders with respect to certain of their changes to the initial drafts.
On June 27, 2016, at the direction of the Strategic Review Committee, representatives of the Financial Advisors distributed to the five remaining bidders a process letter setting out the process and guidelines for the submission of final acquisition proposals and establishing July 18, 2016 as the final bid deadline. The process letter provided for submission of interim mark-ups of the transaction agreements on July 6, 2016, and, based on feedback to be provided by Skadden and Cravath on such interim mark-ups, the submission of final mark-ups of the transaction agreements on July 14, 2016. The process letter further requested that the bidders submit executed debt and equity financing commitment letters (if applicable) with their final proposals, and noted that the Strategic Review Committee would attach considerable importance to the certainty of the financing commitments in its evaluation of the final proposals.
On June 27, 2016, at Verizonâs request, members of the Strategic Review Committee, together with a representative of one of the Financial Advisors, met with Mr. McAdam and other members of Verizonâs management team to discuss Verizonâs participation in the sale process and Verizonâs interest in a potential transaction involving Yahooâs operating business.
On June 29, 2016, the Board held a meeting at Yahooâs Sunnyvale headquarters, with members of management and representatives of the Financial Advisors, Cravath, Skadden, and Wilson Sonsini present, to discuss, among other things, the strategic alternatives process. At the meeting, members of the Strategic Review Committee reviewed the interim proposals received from the five continuing bidders, and the Financial Advisors presented the Board with a comparison of the financial aspects of the bids, as well as their preliminary financial analysis with respect to Yahooâs operating business, including the relative advantages and disadvantages, as well as the expected timing, of a reverse spin-off compared to a sale of Yahooâs operating business. The representatives of Cravath and Skadden reviewed with the Board potential issues raised by the biddersâ mark-ups of the transaction agreements. A representative of Wilson Sonsini reviewed the Boardâs fiduciary duties and other legal considerations. The Board also expanded the Strategic Review Committeeâs authority, by authorizing it to consider, evaluate, and make recommendations to the Board regarding the potential monetization of the Excalibur IP Assets, consideration of a reverse spin-off, capitalization and initial investment objectives of Yahoo following a sale of its operating business or a reverse spin-off, the disposition of the Alibaba Shares and the Yahoo Japan Shares, and the repatriation of cash to Yahooâs stockholders.
Yahoo held its annual stockholders meeting on June 30, 2016. At the annual meeting, Yahooâs stockholders elected each of Yahooâs director nominees to the Board.
On July 1, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of its advisors and Skadden participating, to review the discussions held with the bidders regarding their initial transaction agreement mark-ups, as well as the status of the biddersâ due diligence review and the financial sponsor biddersâ progress in securing equity and debt financing commitments.
On July 6, 2016, Yahoo received interim mark-ups of the transaction agreements from Verizon, Strategic Party B, Sponsor A, and Sponsor F. In its interim transaction agreement mark-ups, Verizon further improved the terms of its bid by, among other things, eliminating the pre-closing tax indemnity (with certain exceptions) and lowering the Yahoo termination fee from 4.0 percent to 3.5 percent. The transaction agreement mark-ups from Strategic Party B, Sponsor A, and Sponsor F that submitted interim mark-ups at that time were generally less favorable to Yahoo than Verizonâs mark-ups on non-price terms, including indemnification, closing conditions, the Yahoo termination fee, and, where applicable, the reverse termination fee.
On July 7 and July 11, 2016, representatives of Skadden and Cravath held telephonic meetings with representatives of each of the four bidders that had submitted interim mark-ups on July 6, 2016 to clarify certain terms of, and provide feedback on, their interim mark-ups, consistent with the guidance provided by the Strategic Review Committee.
On July 7, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of its advisors participating, to discuss the status of the sale process and the discussions with each of the five remaining bidders and to receive an update from Cravath on the most significant issues raised by the interim mark-ups of the transaction agreements received so far. At the meeting, the Strategic Review Committee discussed Sponsor Fâs request to have discussions with David Filo, a director and co-founder of Yahoo, its Chief Yahoo, and its largest individual stockholder, regarding the possibility of Mr. Filo providing equity financing in a bid by Sponsor F. Following discussion, in order to enable Sponsor F to present the best possible bid, the Strategic Review Committee decided that it would permit the bidder to have discussions with Mr. Filo regarding his potential participation in a bid by Sponsor F, so long as Mr. Filo was willing to enter into such discussion and, if so, that he recuse himself from all further Board discussions regarding the sale process and not receive any further information about the bidding process for as long as Mr. Filo contemplated such participation. On behalf of the Strategic Review Committee, a representative of Wilson Sonsini discussed with Mr. Filo whether he would be willing to have discussions with Sponsor F on these terms. Mr. Filo indicated that he would be willing to discuss a potential equity participation in a bid by Sponsor F or, if requested, by another financial sponsor bidder if it would help to facilitate maximizing stockholder value in the strategic alternatives process. The Strategic Review Committee also determined that if any other bidders requested to have discussions with Mr. Filo going forward, the Strategic Review Committee would evaluate those requests on a case-by-case basis. Throughout the week of July 11, 2016, the Strategic Review Committee had numerous discussions with representatives of Cravath, Wilson Sonsini, and the Financial Advisors regarding Mr. Filoâs potential equity participation in a bid by Sponsor F. Mr. Filo agreed to the restrictions on his access to discussions and information proposed by the Strategic Review Committee.
On July 10, 2016, the Strategic Review Committee had a conference call with representatives of the Financial Advisors, Cravath, and Skadden to review issues raised by the interim mark-ups of the transaction agreements submitted by the bidders. At the meeting, the Strategic Review Committee provided Skadden and Cravath with guidance with respect to the feedback they would deliver to the bidders in accordance with the process outlined in the process letter.
On July 11, 2016, Sponsor B submitted its interim mark-ups of the transaction agreements, which did not contain significant improvements compared to Sponsor Bâs prior mark-ups. The next day, principals of Sponsor B met with Mr. Webb to discuss its interest in pursuing a potential acquisition of Yahooâs operating business.
On July 14, 2016, representatives of Skadden and Cravath held a conference call with representatives of Sponsor B to provide them with feedback on their interim mark-ups of the transaction agreements.
Also on July 14, 2016, Verizon, Strategic Party B, Sponsor A, and Sponsor F submitted revised, final mark-ups of the transaction agreements.
On July 18 and 19, 2016, all five bidders submitted to the Strategic Review Committee their final acquisition proposals, and Sponsor B also provided revised mark-ups of the transaction agreements and executed equity and debt financing commitment letters. Sponsor A and Sponsor F did not submit executed financing commitments. The final proposals included the following terms, among others:
⢠Verizon increased its base purchase price to $4.8258 billion. Its final proposal (i) continued to exclude the Excalibur IP Assets from the acquired assets and narrowed the scope of the royalty-free license to the Excalibur IP Assets that would be granted for the benefit of Verizon and its current and certain future affiliates, (ii) continued to provide generally for the substitution of cash-settled Verizon restricted stock units for unvested Yahoo RSU awards and no assumption or substitution of any Yahoo options, (iii) continued to provide for no indemnification for breaches of representations and warranties under the purchase agreement, and (iv) lowered the Yahoo termination fee to 3.0 percent of the base purchase price.
⢠Strategic Party B lowered its base purchase price to $2.9 billion. Its proposal (i) excluded the Excalibur IP Assets from the acquired assets, but provided that Strategic Party B and its controlled affiliates would be granted a full license to the Excalibur IP Assets, (ii) continued to provide for the substitution of Strategic Party B restricted stock units and options for unvested Yahoo RSU awards and unvested Yahoo options, (iii) continued to provide that Yahoo would indemnify the buyer for, among other things, breaches of representations and warranties, and (iv) revised the Yahoo termination fee to 3 percent of the base purchase price, subject to escalation by 1/30 of 0.5 percent each day (i.e., 0.5 percent per month) if the stockholder meeting was not held within six months following the announcement of a transaction.
⢠Sponsor A reduced its base purchase price to $4.0 billion. Its proposal provided (i) that the Excalibur IP Assets would be excluded from the acquired assets, (ii) that the cost of equity awards would generally be retained by Yahoo, (iii) that Yahoo would bear severance costs of terminating a certain number of employees (which Sponsor A estimated to be $200 million to $300 million), (iv) for indemnification for breaches of representations and warranties under the purchase agreement regarding the business in the reorganization agreement, and (v) a Yahoo termination fee and a reverse termination fee of 3.25 percent and 5.5 percent, respectively, of the base purchase price. Sponsor A also proposed an alternative transaction, pursuant to which the majority of the assets of Yahooâs operating business would be separated from a liquidating trust holding the remainder of the operating assets, including all of Yahooâs physical assets, as well as certain legacy liabilities, and the liquidating trust would be acquired by Sponsor A through a combination of equity and vendor financing provided by Yahoo, though no purchase price for the liquidating trust was specified.
⢠Sponsor B proposed a $4.05 billion base purchase price. Its proposal provided (i) that the Excalibur IP Assets would be included in acquired assets, (ii) that the cost of equity awards would generally be retained by Yahoo, (iii) that Yahoo would implement an employee reduction plan prior to the closing and a portion of the related severance would be borne by Yahoo, (iv) for no indemnification for breaches of representations and warranties under the purchase agreement, (v) a Yahoo termination fee and a reverse termination fee each equal to 4.0 percent of the base purchase price, and (vi) that a reverse termination fee would be the exclusive termination remedy of Yahoo, meaning that Yahoo would not have the right to cause the buyer to close if its debt financing was available.
⢠Sponsor F reduced its base purchase price to $4.35 billion. Its proposal provided (i) that the Excalibur IP Assets would be excluded from the acquired assets, (ii) that the cost of equity awards would generally be retained by Yahoo, (iii) for no indemnification for breaches of representations and warranties under the purchase agreement, and (iv) a Yahoo termination fee and a reverse termination fee equal to 3.75 percent and 7.5 percent, respectively, of the base purchase price.
On July 18 and July 19, 2016, the Strategic Review Committee had multiple conference calls with its advisors to discuss the final proposals. The Strategic Review Committee considered that (i) Verizonâs bid offered the highest base purchase price, (ii) Verizon had submitted the transaction agreement mark-ups that were most responsive to the Strategic Review Committeeâs concerns regarding value, certainty of closing, and leaving the post-closing entity with limited liabilities unrelated to the assets retained by Yahoo, (iii) Verizon had sufficient funds to finance the transaction, whereas the financing of the financial sponsor bidders was less certain, and (iv) Verizon had substantially completed its due diligence review, whereas the financial sponsors needed additional time to complete their due diligence review. In light of these and other factors, the Strategic Review Committee recommended that Yahoo should proceed to negotiate definitive transaction agreements with Verizon on an expedited basis. The Strategic Review Committee also determined, after reviewing proposals received to date for the Excalibur IP Assets, to recommend to the Board that Yahoo should retain the Excalibur IP Assets at that time.
Also on July 18 and July 19, 2016, the Financial Advisors contacted each of the other four bidders to obtain additional information with respect to their proposals, and to discuss whether they could enhance their prices for Yahooâs operating business.
Later in the evening on July 19, 2016, the Board, with members of management, representatives of the Strategic Review Committeeâs advisors, Skadden, and Wilson Sonsini present, convened to discuss the final proposals received by the Strategic Review Committee. As previously arranged, Mr. Filo did not participate in this Board meeting or any other subsequent Board meetings relating to the proposed transaction and was not given access to materials for the meeting, including the final proposals. At the meeting, representatives of the Financial Advisors reviewed with the Board each of the final proposals. Representatives of Skadden and Cravath then reviewed with the Board the key issues raised by the final mark-ups of the transaction agreements submitted by the bidders. After discussion, considering the factors differentiating Verizonâs bid described above, the Board determined that Yahoo should proceed to negotiate definitive transaction agreements with Verizon on an expedited basis.
Skadden distributed revised versions of the transaction agreements to Verizon and Wachtell, Lipton, Rosen & Katz (âWachtellâ), Verizonâs legal counsel, early on the morning of July 20, 2016. Yahoo Holdings was also formed on July 20, 2016. Beginning later on July 20, 2016, and through the evening of July 22, 2016, Skadden and Wachtell exchanged revised drafts of the transaction agreements, and representatives of Skadden, in consultation with representatives of Cravath, and representatives of Wachtell negotiated the terms of the transaction agreements. Also during this time, the parties negotiated the terms of the Excalibur License Agreement.
In the evening of July 20, 2016, members of the Board, with members of management and representatives of the Strategic Review Committeeâs advisors, Skadden, and Wilson Sonsini present, received a telephonic update on the status of the negotiations with Verizon and its advisors.
Also on July 21, 2016, the Strategic Review Committee held a telephonic meeting, with representatives of the Strategic Review Committeeâs advisors participating, to discuss the status of discussions with Verizon. Representatives of Cravath reviewed with the Strategic Review Committee the material open items in the transaction agreements and the Strategic Review Committee provided feedback on certain of those matters.
In the afternoon on July 22, 2016, the Strategic Review Committee, together with representatives of its advisors, held a telephonic meeting. Representatives of Cravath reviewed with the Strategic Review Committee its fiduciary duties and other relevant legal considerations in connection with recommending a potential transaction to the Board. The representatives of Cravath also reviewed with the Strategic Review Committee the terms of the proposed transaction agreements to be entered into with Verizon and provided the Strategic Review Committee with an update on the status of negotiations. Representatives of the Financial Advisors then each reviewed with the Strategic Review Committee their financial analyses of Yahoo and its operating business. The Strategic Review Committee also discussed with its advisors a communication received by Mr. Webb from the principal of Sponsor B reiterating Sponsor Bâs interest in an acquisition.
After the Strategic Review Committeeâs meeting, on July 22, 2016, members of the Strategic Review Committee had a call with a principal of Sponsor B, during which the principal indicated that the Strategic Review Committee should expect to receive the revised proposal within the next few hours, but did not disclose any specific monetary terms of the revised proposal. Later that evening, just prior to the scheduled start of a Board meeting, the Strategic Review Committee received from Sponsor B a revised proposal to acquire Yahooâs operating business for an enterprise value of $4.8 billion contingent on, among other things, Yahoo retaining the cost of its equity awards and Yahoo and Sponsor B agreeing on a key employee reduction plan to be executed prior to closing, on the allocation between Yahoo and Sponsor B of the severance costs related to the reduction plan, as well as several other contract concessions.
In the evening of July 22, 2016, the Board held a telephonic meeting, with members of management and representatives of the Strategic Review Committeeâs advisors, Skadden, and Wilson Sonsini participating. All of the members of the Board were in attendance, except for Mr. Filo. A representative of Wilson Sonsini reviewed with the directors their fiduciary duties, as well as the scope of the authority delegated by the Board to the Strategic Review Committee. A representative of Skadden then reviewed with the Board the terms and conditions of the proposed transaction with Verizon contained in the purchase agreement and related transaction agreements. Representatives of Skadden and Cravath also updated the Board on the status of the negotiations. The Board then discussed with the Strategic Review Committeeâs advisors, Skadden, and Wilson Sonsini Sponsor Bâs revised proposal. The Board considered, among other things, that the price offered in Sponsor Bâs revised proposal was lower than the price offered by Verizon and that Sponsor Bâs proposal did not assume the Yahoo RSU awards, the certainty of the Verizon bid, the risk of losing the Verizon bid if Yahoo were to delay signing and pursue further discussions with Sponsor B, and the fact that Sponsor Bâs offer was subject to confirmatory due diligence and the negotiation of definitive transaction agreements. The Board concluded that the risks of delaying signing a transaction with Verizon for an inferior offer from Sponsor B outweighed any potential benefit of pursuing further negotiations and noted that, in the proposed transaction with Verizon, the Board retained a customary âfiduciary outâ to pursue an unsolicited potentially superior proposal that emerged after signing the transaction agreements. Representatives of J.P. Morgan and Goldman Sachs then described certain hedge and warrant transactions relating to the Convertible Notes, with respect to which J.P. Morgan and Goldman Sachs are counterparties to the Company, noting that these interests had been disclosed to, discussed with, and considered by the Strategic Review Committee and the Board in connection with their respective engagements as financial advisors to the Strategic Review Committee. They also discussed with the Board the potential impact of the proposed Sale Transaction on the hedge and warrant transactions, including the value that Goldman Sachs and J.P. Morgan could potentially receive under various assumptions as a result of their interest in the hedge and warrant transactions, based on theoretical models. Representatives of the Financial Advisors then jointly reviewed with the Board their joint financial analysis of the purchase price to be paid by Verizon to Yahoo in connection with the Sale Transaction (the âCash Considerationâ), which is $4,825,800,000 in cash, subject to adjustments as provided for in the purchase agreement, together with the general substitution of cash-settled Verizon RSU awards for unvested Yahoo RSU awards held by employees of Yahoo Holdings immediately prior to the closing of the Sale Transaction (the âRSU Substitutionâ). At this meeting, each of the Financial Advisors then rendered its oral opinion to the Strategic Review Committee and the Board, each of which were subsequently confirmed by delivery of a written opinion, to the effect that, as of the date of such opinion, and based upon and subject to the factors and assumptions set forth in such Financial Advisorâs written opinion, the Cash Consideration to be paid in the Sale Transaction, together with the RSU Substitution, pursuant to the purchase agreement, was fair, from a financial point of view, to Yahoo.
The Board meeting was then recessed and the Strategic Review Committee held an executive session, during which the Strategic Review Committee unanimously recommended to the Board that the Board approve the purchase agreement and the reorganization agreement negotiated with Verizon and the transactions contemplated by those agreements. The Board meeting was reconvened immediately thereafter and, after receiving the recommendation of the Strategic Review Committee, the Board, by unanimous vote of all directors present at the meeting (which excluded Mr. Filo), (i) determined that the Sale Transaction Agreements and the Sale Transaction are expedient and for the best interests of Yahoo and its stockholders, (ii) approved the Sale Transaction Agreements and the Sale Transaction, (iii) recommended, subject to the terms of the Stock Purchase Agreement, that the Yahoo stockholders adopt a resolution authorizing the Sale Transaction, and (iv) directed that the Sale Transaction be submitted for consideration by the stockholders at the special meeting.
Following the meeting, until early morning on July 23, 2016, representatives of Skadden, in consultation with Cravath, Weil, Gotshal & Manges LLP (which acted as intellectual property counsel to Yahoo), and Wachtell finalized the terms of the Sale Transaction Agreements, and on the morning of July 23, 2016, Yahoo and Verizon executed the Stock Purchase Agreement, Yahoo and Yahoo Holdings executed the Reorganization Agreement, and Yahoo and Excalibur executed the Excalibur License Agreement.
On July 25, 2016, Yahoo and Verizon issued a joint press release announcing the transaction and the execution of the Sale Transaction Agreements.