Verizon to take a charge of up to $6.7B due to Oath and redundancies

Verizon, the telecoms giant that is the parent of Oath (and therefore owns TechCrunch), has been through the re-organizational ringer in recent quarters and today it announced the full financial effect of that process. According to an SEC filing, the company will take charges of up to $6.7 billion as a result of a voluntary redundancy program (up to $2.1 billion pre-tax) and market pressures for its Oath business, which is primarily made up of the merger of AOL and Yahoo, two companies it has acquired in recent years (up to $4.6 billion pre-tax).

On the other hand, a reorganization of legal entities in with its wireless business will give it a tax benefit of $2.1 billion.

Coming clean appears to be good business it seems. The company’s share price is up by one percent in trading at the moment.

On the cost side, the company specifically said that its voluntary separation program, which will ultimately impact 10,400 employees by June 2019 (but will see the first tranche leave this month), will lead to a severance charge of between $1.8 billion and $2.1 billion ($1.3 billion to $1.6 billion after-tax) in Q4 2018.

Oath, meanwhile, “has experienced increased competitive and market pressures throughout 2018 that have resulted in lower than expected revenues and earnings. These pressures are expected to continue and have resulted in a loss of market positioning to our competitors in the digital advertising business.”

Oath said it plans to write down $4.6 billion ($4.5 billion after-tax) in Q4 2018. This essentially is wiping out the benefits of the merger. Verizon said that the goodwill balance of the Oath reporting unit was approximately $4.8 billion prior to the incurrence of this impairment charge.

Problems include lower than expected benefits from the integration of the Yahoo Inc. and AOL Inc. businesses, the company said, although there have been plenty of other issues, such as the fact that Yahoo suffered a mega data breach affecting 500 million users, which has tarnished the company’s image; and the fact that audiences shifting to mobile apps and non-Oath properties will have made the media / advertising play of combining these two businesses too little, too late. (On top of all this,  longtime AOL and Oath CEO Tim Armstrong, who led the charge on the Yahoo acquisition, also departed the company. The media business is now led by K. Guru Gowrappan.)

Verizon explained that under new Verizon CEO Hans Vestberg, who took over the role in August of this year, Oath finished a five-year strategic planning review of Oath’s business prospects, and this is why the write-down came to be.

“Consistent with our accounting policy, we applied a combination of a market approach and a discounted cash flow method reflecting current assumptions and inputs, including our revised projections, discount rate and expected growth rates, which resulted in the fair value of the Oath reporting unit being less than its carrying amount.”

There have been various reports questioning what place media content will have for Verizon longer-term, although for now strategic alternatives or sales do not appear to be something Verizon is discussing publicly. It’s a fair question, considering that Vestberg himself is a telecoms veteran who has doubled down on next-generation networking, and specifically 5G, as an engine for growth. It’s not clear how and if his predecessor’s strategy to focus on content and media will fit into that.