But Wait. Didn’t Yahoo Try a Deal Like This Before?

When Yahoo announced its headline-grabbing acquisition, it boasted that the deal gave it access to an “unduplicated” audience of users and that its target was a “popular personal publishing” platform.

“Yahoo will be able to integrate and distribute a powerful set of state-of-the-art editing tools and content published through personal home pages in an array of services,” the company declared.

But Yahoo wasn’t talking about Tumblr. Those quotes came from a news release Yahoo issued in 1999 when it acquired GeoCities, which allowed users to create their own Web pages â€" not unlike Tumblr â€" for $3.6 billion in stock. The site was closed in 2009.

As investors and analysts size up Yahoo’s latest $1.1 billion acquisition, it is worth reflecting on the GeoCities deal, which has many similarities. Both companies were money losers when they agreed to be acquired. Tumblr had just $13 million in revenue last year, according to reports.

Both companies had loyal followers that quickly left in droves. According to Matt Mullenweg, the founder of WordPress and a competitor, Tumblr users were moving their posts over to WordPress at a rate of 72,000 an hour amid speculation of an impending deal this weekend. (Usually, he said, Tumblr users migrated 400 to 600 posts an hour). Still, for perspective, Tumblr users generate tens of millions of posts a day.

And GeoCities and Tumblr had at one point been averse to accepting advertising. Tumblr’s 26-year-old chief executive (and now multimillionaire), David Karp, said three years ago, “We’re pretty opposed to advertising,” adding that “It turns our stomach.”

The lesson of GeoCities raises this question about Tumblr: How can a company with zero profits (actually, multimillion-dollar losses) and just $13 million in revenue be worth $1.1 billion?

Inside Yahoo, officials dismiss the comparison to GeoCities. Instead, they compare the Tumblr deal to Google’s purchase of YouTube â€" that is, Yahoo’s management believes that Tumblr is one of a rare few transformative sites on the Internet. Google paid $1.6 billion for YouTube when it too made no money. At the time of that deal, it seemed heretical. Now, it seems genius.

To Yahoo, Tumblr is the equivalent of beachfront property. With more than 100 million user-generated blogs on Tumblr, there is no question that it brings Yahoo a younger audience. It adds a sense of hipness to a company that had lost its sense of cool.

According to Marissa Mayer, Yahoo’s chief executive, who drove this deal, Tumblr brings Yahoo a possible growth engine for the future.

But that’s a big if. It requires Ms. Mayer’s team to execute brilliantly and online users to continue to want to establish ways to communicate outside of places like Facebook and Twitter.

And then there is the pesky issue of selling ads on Tumblr’s pages without upsetting the site’s finicky users. (One user began a petition to block the deal.)

“It is difficult to justify the premium acquisition price for Tumblr given its low levels of revenue,” wrote Doug Anmuth of Barclays Capital in a note to investors. “In addition, we believe Yahoo needs to be careful about the manner in which it monetizes Tumblr, as a significant ad load and the perception of a large corporate owner could potentially alienate Tumblr’s core user base. Though we believe Tumblr’s model does have switching costs for users, we do not view its actual barriers to entry as particularly high.”

If you want to do the math on what it would take for Yahoo to justify the price tag, Brian Pitz, an analyst at Jefferies, has sketched it out. By his count, Yahoo will need to figure out a way to make $127 million a year in profit from Tumblr, meaning the site would have to bring in an additional $950 million annually in advertising revenue.

That’s a big challenge, especially considering that Ms. Mayer pledged that while she planned to add more ads to Tumblr, she would do so mostly on the site’s “dashboard” or newsfeed.

“We would like to look at them and understand how we could introduce ads â€" in a very light ad load â€" where the impact is really created, because the ads really fit the users’ expectations and follow the form and function of the dashboard,” Ms. Mayer said.

She said she might add advertising to user pages, but only with the permission of the blogger. That means a lot of Web pages will not be monetized.

And there is the issue of porn. Yes, porn. At least some of Tumblr’s users post images that are not exactly “work safe.” Indeed, Tumblr’s own terms of service allows for such content. Such content could make Tumblr a challenging environment for advertisers.

Tumblr’s users also regularly post copyrighted images and other content Yahoo will have to find a way to police. When Tumblr was just an upstart, content owners were unlikely to pursue claims against the company, but now that it might be owned by a big public corporation, you can bet that copyright owners, some of whom compete with Yahoo, will be contacting their lawyers.

Given all of that, you might expect me to say that Yahoo should have never proposed acquiring Tumblr. But I won’t.

It may actually turn out to be the right bet. The key is recognizing that it is a shoot-the-moon gamble. It might work out. It might not.

And even if it does not work out, analysts note that Yahoo can afford to experiment given the billions of dollars it has in cash.

As Jordan Rohan, an analyst at Stifel Nicolaus, wrote: “Even a squandering of $1.1 billion in cash, however unlikely that might seem to Yahoo management, would only move the sum-of-parts slightly.”

Yahoo’s Social Media Play

The board of Yahoo agreed on Sunday to buy the popular blogging service Tumblr for about $1.1 billion in cash, a signal of how Yahoo plans to reposition itself in the age of social media, The New York Times reports, citing people with direct knowledge of the matter. The deal, expected to be announced as soon as Monday, would surpass Facebook’s $1 billion purchase of Instagram last year.

“For Yahoo and its chief executive, Marissa Mayer, buying Tumblr would be a bold move as she tries to breathe new life into the company,” Michael J. de la Merced, Nick Bilton and Nicole Perlroth write in The New York Times. “The deal, the seventh since Ms. Mayer left Google last summer to take over Yahoo, would be her biggest yet. It is intended to give her company more appeal to young people, and to make up for years of missing out on the revolutions in social networking and mobile devices. Tumblr has over 108 million blogs, with many highly active users.”

Still, the question remains: can Tumblr and other social media sites make money? For a comparison with Instagram, Mr. de la Merced lists details of the two companies.

COHEN GETS SUBPOENA TO TESTIFY  |  “Steven A. Cohen has received a subpoena to testify before a grand jury in the government’s insider trading investigation into his hedge fund, SAC Capital Advisors, a development that signals a newly aggressive phase in the multiyear inquiry, according to lawyers and executives briefed on the case,” DealBook’s Ben Protess and Peter Lattman report. “Issued last week, the grand jury subpoena came as part of a broader round of requests from criminal authorities. Other SAC executives were also named in the subpoenas, the lawyers and executives said, and the fund itself received requests for information about its activities.”

The subpoenas suggested authorities were intensifying their efforts to build a case against SAC executives and the fund itself. On Friday, the fund, which had cooperated with the government’s inquiry, appeared to balk, telling investors it was no longer fully cooperating with the investigation. DealBook writes: “The curbing of the fund’s cooperation appeared to suggest that Mr. Cohen, rather than testify before the grand jury and be subject to questions from prosecutors on a broad range of topics, would assert his constitutional right against self-incrimination, the lawyers briefed on the case said.”

AT JPMORGAN, A TEST OF STOCKHOLDERS’ POWER  |  On Tuesday, shareholders of JPMorgan Chase will have the opportunity to deliver a humbling rebuff to Jamie Dimon and the board, Jessica Silver-Greenberg and Susanne Craig write in DealBook. “If shareholders vote to separate the jobs of chairman and chief executive â€" positions that Mr. Dimon has held since 2006 â€" it would signal a shift in the balance of power in corporate America, an inflection point in shareholders’ push for greater say in the boardroom.”

JPMorgan has minted profits and its stock price is on the rise, unusual traits for a company facing a possible shareholder protest. “A victory against a bank that prides itself on its ‘fortress balance sheet’ would go a long way toward proving that shareholders can push for changes even at strong companies.”

ON THE AGENDA  |  Yahoo has scheduled a news event at 5 p.m. in New York. Sallie L. Krawcheck, a former finance executive who is buying the women’s network 85 Broads, is on CNBC at 11 a.m. Urban Outfitters and Tivo report earnings on Monday evening.

BLACKROCK, QUIETLY STIRRING  |  BlackRock, the world’s largest asset manager, has tremendous influence during proxy season. Yet the firm has never sponsored a shareholder proposal and rarely broadcasts its actions. “There is agreement, however, that the firm has become more active in recent years, as other shareholders, too, have been expressing themselves more forcefully,” Ms. Craig reports in The New York Times. “It’s easy to be cynical about the value of voting on what are ultimately nonbinding resolutions that companies can ignore. But investors can now wield more power than in the past, partly because of recent laws that require companies to hold a vote on issues like executive pay.”

SUSPENSE AT SONY  |  The picture of success at Sony Pictures Entertainment is not quite what it seems, Brooks Barnes and Michael Cieply reportin The New York Times. Sony is at a troubled crossroads, with aging stars and steep costs. But the true surprise came on Tuesday, when the hedge fund manager Daniel S. Loeb proposed a spinoff of up to 20 percent of Sony’s studio and other entertainment holdings.

“Overnight, Michael M. Lynton, the C.E.O. of both Sony Pictures and Sony Entertainment, and Amy Pascal, co-chairwoman of Sony Pictures, found themselves under a kind of weight rarely felt in Hollywood since the 1980s, when corporate raiders and high-yield bond peddlers like Saul Steinberg, the Bass brothers and Michael Milken delved into studios, looking for hidden value.”

Mergers & Acquisitions »

Goldman to Sell Remaining Stake in Chinese Bank  |  Goldman Sachs on Monday offered about $1.1 billion worth of shares in Industrial and Commercial Bank of China, a sale that would end Goldman’s investment in the Chinese bank, Reuters reports. REUTERS

Chesapeake Energy Chooses a C.E.O.  |  Chesapeake’s directors chose Robert Douglas Lawler, an executive at Anadarko Petroleum, to succeed Aubrey K. McClendon as chief executive, The Wall Street Journal reports, citing unidentified people familiar with the matter. WALL STREET JOURNAL

Morgan Stanley to Sell Indian Wealth Management Business  |  Morgan Stanley is selling the unit to Standard Chartered. REUTERS

More Deals for Elan  |  Reuters reported that the Irish drug firm Elan had agreed on Monday to buy two private drug firms, spin off its lone experimental drug and buy back more shares “to give a firmer idea of how the company will be reconfigured as shareholders weigh up a takeover bid.” REUTERS

Onex Said to Call Off Auction for Carestream Health  |  Onex failed to find a buyer for its medical imaging business Carestream Health, according to Reuters. REUTERS

3 Foreign Firms Invest in U.S. Project to Export Liquid Natural Gas  |  Mitsui and Mitsubishi of Japan, and GDF Suez of France each plan to take a stake in a gas export project being developed at Hackberry, La. DealBook »

INVESTMENT BANKING »

R.B.S. Appoints New Chairman for Asia  |  The Royal Bank of Scotland said on Monday that Donald Workman would succeed John McCormick as the executive chairman of its Asia unit, in the latest high-level management change at the bank. DealBook »

Investor Group Asks S.E.C. to Intervene on Access to Shareholder Vote Totals  |  The Council of Institutional Investors asked the Securities and Exchange Commission to intervene after Broadridge shut off access to real-time vote totals for the sponsors of shareholder proposals. DealBook »

As Scotland Looks Toward Independence, Concern for Banks  |  The New York Times writes: “An independent Scotland could find its banks too big to rescue in the event of another crisis, according to a British government report that compares the Scottish financial sector with those of debt-laden Iceland and Cyprus.” NEW YORK TIMES

Blankfein Says Risk of a Euro Breakup Has Lessened  |  “Americans have a history of underestimating the political will of the Europeans to see through the successful creation of a united Europe,” Lloyd C. Blankfein, chief of Goldman Sachs, told a German newspaper, according to Bloomberg News. BLOOMBERG NEWS

Dueling Jobs at a REIT  |  Stanford L. Kurland, chief executive and chairman of the PennyMac Mortgage Investment Trust, has reaped even greater returns than shareholders through his involvement in a mortgage servicing unit and an investment adviser that externally manages the REIT, Gretchen Morgenson writes in her column for The New York Times. NEW YORK TIMES

A Toehold for China on Wall Street  |  The China Investment Federation, a new organization supporting Sino-American deal-making, celebrated the opening of its New York office on Thursday with officials from Wall Street and China. DealBook »

Faced With Overload, a Need to Find Focus  |  Here is a radical proposal: Don’t check your e-mail tomorrow morning. Instead, devote a designated period of uninterrupted time to a task that really matters, Tony Schwartz writes in the Life@Work column. DealBook »

PRIVATE EQUITY »

Fosun of China Said to Plan Private Equity Fund  |  The Chinese conglomerate Fosun International “is raising a $1 billion private equity fund that will invest in Europe and international companies seeking to expand in China, according to a person familiar with the situation,” The Wall Street Journal reports. WALL STREET JOURNAL

Middle Eastern Wealth Funds Gravitate Toward Private Equity  |  The Financial Times reports: “Cash-rich Middle Eastern sovereign wealth funds are increasing their investments in private equity, but a much-hyped move into property and infrastructure is petering out.” FINANCIAL TIMES

HEDGE FUNDS »

Short-Seller Takes Aim at Chinese Banks  |  “We believe that the domestic Chinese banking system is a mess, with an enormous amount of bad loans, or loans waiting to go bad,” Carson Block, founder of Muddy Waters Research, told The Sunday Telegraph. TELEGRAPH

The Top Hedge Funds, According to Barron’s  | 
BARRON’S

Icahn Succeeds in Effort to Oust Transocean Chairman  |  But shareholders did not back Carl C. Icahn’s proposal for a $4 dividend. ASSOCIATED PRESS

I.P.O./OFFERINGS »

Virtus Health Hunts for Acquisitions After I.P.O.  |  Virtus Health, a provider of fertility services in Australia, is seeking acquisitions and planning to expand internationally, its chief executive said on a television program, according to Bloomberg News. BLOOMBERG NEWS

VENTURE CAPITAL »

Silicon Valley Seeks to Amend Immigration Bill  |  The technology industry has already managed to get much of what it wanted in a bill that overhauls federal immigration law; now, the industry’s lobbyists are trying to get rid of certain provisions it finds unappealing, The New York Times writes. NEW YORK TIMES

LEGAL/REGULATORY »

Rajat Gupta’s Lust for Zeros  |  As Rajat K. Gupta’s appeal is scheduled to be heard this week, a New York Times Magazine article examines the circumstances that led to his partnership with Raj Rajaratnam, the billionaire head of the Galleon Group hedge fund. DealBook »

Corruption as a Growth Business  |  A new survey conducted on behalf of Ernst & Young found that corporate officials and employees in 36 countries â€" in Europe, Africa, India and the Middle East â€" believe there is plenty of corruption that needs investigating, Floyd Norris writes in The New York Times. DealBook »

Fed Reaches Deal With Bank on Compliance  |  The Federal Reserve reached an agreement with the Bank of Montreal to bolster its efforts to detect and prevent money laundering at its branch in Chicago. DealBook »

Firms’ Ties to Insurers Under Scrutiny  |  The Wall Street Journal reports: “New York’s top financial regulator subpoenaed a handful of Wall Street investment firms about their entries into a corner of the insurance industry that guarantees steady payments to hundreds of thousands of retirees and other consumers.” WALL STREET JOURNAL

Former Spanish Banker Spends a Night in Jail  |  “Miguel Blesa, the former executive chairman of Caja Madrid, has become the first prominent Spanish banker to go behind bars since the start of the financial crisis. He is accused of leaving the company saddled with huge losses because of an ill-advised takeover of a bank based in Miami in 2008,” The New York Times writes. NEW YORK TIMES

Where the I.R.S. Investigation May Go From Here  |  In the criminal investigation into how the Internal Revenue Service processed tax-exempt applications from conservative organizations, the critical issue may hinge on what agency officials told Congress rather than the underlying actions, Peter J. Henning writes in the White Collar Watch column. DealBook »

The Problem With the Fed’s Easy Money Policies  |  Are we moving from the bust to the bubble, Jesse Eisinger asks in The Trade column, and missing the recovery for average people? The Trade »

R.B.S. Appoints New Chairman for Asia

Royal Bank of Scotland on Monday announced a new chairman for Asia, the latest in a series of high-level executive changes at the British government-owned lender.

R.B.S. said Donald Workman had been appointed as executive chairman of its Asia unit, replacing John McCormick, who the bank announced on Monday was leaving after 17 years of service.

The departure of Mr. McCormick follows other top-level changes at the bank this year, including the replacement of its head of investment banking and its chief financial officer, as Steven Hester, group chief executive of the bank, realigns his management team.

R.B.S., based in Edinburgh and 81 percent owned by the British government, has laid off more than 30,000 people since the financial crisis and this month announced a new round of 1,400 job cuts.

The bank swung to profit in the first quarter of this year compared with a heavy loss in the year-earlier period, and said it hopes to start reducing the government’s stake next year.

Mr. Workman, a 21-year veteran of R.B.S., most recently served as the head of the asset protection program at the bank, a role that focused on the ongoing restructuring. In his new role he will report John Owen, the head of international banking, as well as to the co-heads of capital markets business at the bank.