Yahoo acquires 15% stake in Sonera Zed

LONDON: U.S. Internet company Yahoo, looking to boost the bottom line of its overseas business, said on Tuesday it acquired a 15 percent stake in Finnish wireless Internet portal Sonera Zed in a cash deal. Neither company was willing to disclose the full details of the pact, but analysts have valued the stake at around 15 million euros ($14.6 million). Yahoo said it has the option to acquire 100 percent of Sonera Zed, a privately held unit of Finnish telecoms operator Sonera, over the next two years.

Analysts pegged the value of Sonera Zed at roughly 100 million euros, which would mean Yahoo's initial investment is between 10 million and 15 million euros ($14.8 million). Yahoo, hobbled by the downturn in online advertising, has been seeking ways to get customers to pay for its content and services to return the money-losing European subsidiary into the black.

"We have a substantial Web portal with over 30 million users across Europe," Yahoo Europe managing director Mark Opzoomer told Reuters on Tuesday. "Through this platform we can provide a range of services to mobile users on a pay-for basis." Opzoomer said he hoped the deal would provide a substantial boost to Yahoo Europe's bottom line and increase its chances of earning a core profit in 2003, territory it hasn't reached since the dot-com bubble burst. "I'm optimistic this will be a very large business for us over the next couple years," he added.

Content Alliance

The two companies have entered into an arrangement to bring co-branded news alerts, mail and messaging services to Sonera's European customers in Italy, Germany, the United Kingdom, and its home market, Finland. Opzoomer said eventually Yahoo would like to bring these services, along with picture-based messaging, to users of other European mobile services.

Zed, once considered one of Europe's most advanced wireless portals, had aspirations to float at the height of the technology boom in the late 1990s. But after the market turned, its parent Sonera launched a cost-cutting programme as it struggled to curtail losses. Sonera is in the process of being bought by Sweden's Telia. Opzoomer said Yahoo has been in discussions with Sonera Zed since late last year.

Yahoo and Zed teamed up during the World Cup tournament this summer, enabling Sonera customers to sign up for scoring updates, which were charged to their mobile phone bills. Yahoo and Zed split the revenues. Opzoomer said additional content and services deals would be developed along these lines, seeking to exploit Europeans' fervour for short message service (SMS) mobile communications.

A number of technology and media firms are trying to edge into the mobile telephony market in Europe. Microsoft has signed deals with a variety of European mobile operators, including KPN Mobile, to bring its Web-based email service Hotmail to mobile phone users via SMS. And Vizzavi, the loss-making, two-year-old joint venture between Vodafone Group and Vivendi, has signed up millions of subscribers across Europe for news alerts based on the Wireless Application Protocol (WAP).

One-time high flyer

Sonera's deal with Yahoo marks a further break from its high-flying days of 2000, and comes less than one week after the company said it would sell a majority stake in data security firm SmartTrust to a trio of venture capital firms. In February 2000, Merrill Lynch issued a research note valuing Zed and SmartTrust at over 28 billion euros, making it a hotly anticipated listing candidate.

But as the bubble deflated and the units continued to rack up losses, forcing Zed to slash staff and close down offices globally. The cost cutting has shown results. Sonera Zed had revenues of 11 million euros in the second quarter, more than doubling from the year ago period. The operating loss narrowed to eight million euros from a steep 40 million in April-June 2001. Sonera has said it aims for Zed to have a maximum loss before interest, tax, depreciation and amortisation of 25 million euros in 2002 after a loss of 129 million euros last year.

"We anticipate that our partnership will enable us to further grow our revenues from our mobile services," Sonera Zed CEO Juha Varelius said in a statement about the Yahoo deal.

(Additional reporting by Brett Young in Helsinki)

© Reuters