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Verizon Just Took A Big Step Toward Yahoo Deal

May 31, 2016, 4:36 PM UTC
2012 International Consumer Electronics Show
The Verizon Communications Inc. logo is seen at the International Consumer Electronics Show (CES) in Las Vegas, Nevada, U.S., on Thursday, Jan. 12, 2012.
Photograph by Bloomberg via Getty Images

Verizon Communications on Monday reached a tentative labor agreement that could get around 40,000 striking employees back to work by tomorrow. It also could make it more likely that the telecom giant buys the core Internet assets of Yahoo (YHOO), via an auction process that includes rival bids from AT&T (T), Quicken Loans founder Dan Gilbert and multiple private equity firms.

To be clear, there is no direct financial relationship between the two, nor is it likely that acquired Yahoo employees would become part of the relevant labor unions.

Instead, this is about public relations.

Verizon (VZ) offers Yahoo the best strategic home of the known bidders, including a plug-and-play CEO in AOL boss Tim Armstrong. But even Verizon would have to cut Yahoo employees, with pink slips likely numbering in the thousands. For example, SunTrust analyst Robert Peck recently estimated that Verizon would lay off upwards of 40% of Yahoo’s 10,000 full-time employees (in order to save roughly $2 billion).



Such mass firings would generate bad headlines for any Fortune 500 company, but particularly one that also is in the midst of America’s largest labor strike in recent memory. I’m not suggesting that the PR hit would have stopped Verizon from trying to buy Yahoo ― indeed, the telecom giant bid in the midst of its walkout ― but it could have pulled at least one thumb off the scales as the auction progressed.

Or, put another way: If Verizon was already the front-runner to buy Yahoo, it has gained a few steps over the past 24 hours.