Not that long ago, Verizon spent about $10 billion to pick up AOL and Yahoo with the goal to merge them under their Oath division. Unfortunately, the AOL-Yahoo internet-media business is not performing quite as well as Verizon had originally anticipated, and with that, the telecommunications company now expects to record a fourth-quarter non-cash goodwill impairment charge equal to about $4.6 billion.
Apparently, this charge represents the whole of Verizon’s $4.8 billion existing goodwill balance for its acquisition of oath; all of which will be eliminated. If you did not know, “goodwill” in accounting reflects the value of an acquired entities intangible assets.
In an SEC filing, Verizon describes the development, explaining “Oath has experienced increased competition and market pressures throughout 2018 that have resulted in lower-than-expected revenues and earnings.”
Verizon says that Oath has achieved benefits at a lower rate than they had originally expected from integrating the AOL Inc business and from Yahoo Inc.
The SEC filing goes on to say, “These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business.”
Former Alibaba Group executive, K. Guru Gowrappan (of China) took the helm of Oath, as CEO, on October 1 reporting solely to Verizon CEO Hans Vestberg (who took his role two months before). Verizon’s SEC filing also said the new leadership team (Vestberg and Gowrappan included) completed a five-year strategic planning review of the new company’s Oath’s business prospects. It was this review which resulted in the Oath’s downward financial projection revision.
In addition, Verizon has also said that the filing will take into account between $1.8 billion and $2.1 billion during the fourth quarter of 2018 to cover severance costs, after the recent voluntary buyout offer that said goodbye to 10,400. Roughly half of these buyout employees will leave the company in December with the rest departing before July of next year.
Finally, Verizon has also disclosed an expectation to finalize a full reorganization of the legal entities in association with the wireless business this month. This reorganization will result in a one-time tax-deferred benefit totaling approximately $2.1 billion in the fourth quarter of 2018.