Update, Sunday 12:44 p.m.: AllThingsD's Kara Swisher reports Yahoo!'s board approved the deal on Sunday. This thing is happening. Yahoo! has purchased Tumblr despite any last minute rumblings of distress. This is a developing story and we'll update this post as we learn more.
Update, 1:59 p.m.: These kids are going to get married. Roughly thirty minutes after this post went up, Forbes' Jeff Bercovici reported Tumblr's board of directors approved Yahoo!'s offer and the Yahoo! board is expected to go along with Mayer's wish to buy Tumblr. There's still a little room for things to fall apart, but it's unlikely that's going to happen. So no, the Yahoo! deal will likely not be falling apart.
Original: That rumored $1 billion offer from Yahoo! to buy Tumblr? It's looking like a forgone conclusion at this point. But things are messy and speculative and there are already doomsayers predicting this is a bad idea for everyone involved. But mostly they're predicting it's bad for Yahoo!
AllThingsD's Peter Kafka and Kara Swisher reported late Friday evening that the deal was all but done. Marissa Mayer was going to put forth a $1.1 billion all-cash deal for Tumblr at a board of governor's meeting Sunday. Tumblr CEO David Karp would be kept on with a four year deal that gives him bonus opportunities for business performance. With the board's approval, Yahoo! would purchase Tumblr for that whopping amount of money and Mayer would own her cool blog thing. The only thing missing was the bow on top.
The timing of AllThingD's report is perfect. Yahoo! has a press event scheduled for Monday afternoon. Seems like convenient timing, no? As if Yahoo! is so confident this deal is already done that they're announcing the press conference a whole weekend in advance.
But that's not how business acquisitions work. They're rarely clean. Acquisitions are cut throat and underhanded and nothing is official until the papers are signed. And these negotiations are playing out a little bit too much in the press. So, on that note, TechCrunch reports Tumblr sees Yahoo!'s billion dollar offer as "too low" and "only a first offer." And Tumblr's booming business success and financial reports showing off the charts revenues and profits certainly give it that right. Oh, wait, no. Tumblr only made $13 million in 2012 and that hype about hitting $100 million by the end of this year isn't lining up with reality. TechCrunch says they're going to run out of money soon if they can't find a sugar daddy soon:
Tumblr employees have been told that the company only has enough funds to operate for a few more months, as its costs far exceed the limited revenue it earns. Tumblr pulled in $13 million in 2012, but has accelerated its advertising offering in hopes of hitting $100 million in revenue this year. The money’s not coming in fast enough to support its expenses though. Employees were recently told not to be concerned, though, because the company is expecting to be bought.
Tumblr sources saying, anonymously, that Yahoo!'s offer it too low when they're running out of money and their only hope is for a benevolent benefactor to swoop in and purchase them is something to behold. So things are already messy and being negotiated in public. That usually leads into a great working relationship, right?
To say there are cynics out there who think this is going to blow up and be a disaster for both sides is an understatement. But it's mostly going to be a disaster for Yahoo! and Marissa Mayer because they're the ones dumb enough to pay $1 billion for a company that only generated one percent of that in revenue last year. CNET's Dan Farber thinks this could be go down as poorly in the history books as Fox's deal to buy Myspace:
Of course, there is a big risk in spending a billion on a blogging platform that essentially competes with Facebook and Twitter. Yahoo's board has a good reference point for considering the Tumblr downside. In 2005 Fox bought the fast-growing social network MySpace for $580 million. Then Facebook came along, and six years later Fox unloaded MySpace for $35 million. Yahoo isn't Fox, where MySpace was an island in a sea of mostly unrelated news properties.
And there's also the huge financial blow Yahoo! absorbs for paying such a high price as explained by Business Insider's Henry Blodget:
The $1.1 billion purchase price, meanwhile, will vaporize more than a third of Yahoo's cash balance, which will presumably leave some at the company wondering whether Yahoo should have spent so much money buying back its stock over the last couple of quarters.
The Tumblr deal would put Yahoo! in a stick situation. They would have to reign in the purchasing for a while. It would also limit them from doing investor friendly things like buying back shares or producing dividends. If their stock price takes a dive after the Tumblr deal that could pose major problems. But they would also still have around $2 billion to play with. That's still a lot of money.
So if things do blow up between Yahoo! and Tumblr, though at this point it seems a forgone conclusion no matter what TechCrunch says, who else could possibly step in at the last minute to save Tumblr's keister? Forbes' Jeff Bercovici reports Microsoft and Facebook have also expressed interest, but they can't outright make an offer because Yahoo! and Tumblr have an exclusive negotiation agreement. But if Facebook or Microsoft wanted Karp to know they're interested, well, those messages often get delivered somehow, exclusive agreements be damned. But Bercovici's story could be more work on Tumblr's part to drum up a higher price tag out of Yahoo! As Blodget points out, if Facebook wanted to buy Tumblr, wouldn't it have happened already? Nothing is holding them back. If they were going to do it, the deal would have happened by now.
For now we're left to wait until Sunday's Yahoo! board meeting concludes and both sides can leak whether the deal got done or not. There is a chance that Monday press event is about a Flickr announcement after all.
This article is from the archive of our partner The Wire.