Verizon Signals Cold Feet Over Yahoo Deal

Verizon last week indicated that its US$4.8 billion acquisition of Yahoo could be in jeopardy in light of the company’s delay in disclosing a massive 2014 data breach that compromised about 500 million account holders.

Verizon may need some additional assurances about the effects of the breach, suggested General Counsel Craig Silliman at an event in Washington, D.C.

“I think we have a reasonable basis to believe right now that the impact is material, and we’re looking to Yahoo to demonstrate to us the full impact,” he said. “If they believe that it’s not, then they’ll need to show us that.”

Those comments followed an earlier New York Post report that Verizon had demanded a $1 billion discount on the acquisition price after Yahoo disclosed the extent of the data breach, which was kept under wraps for months after its discovery.

Yahoo expects the acquisition to move forward in spite of the stumbling block. It is scheduled to close by the first quarter 2017.

“We are confident in Yahoo’s value, and we continue to work towards integration with Verizon,” the company said in a statement provided to the E-Commerce Times by spokesperson Suzanne Philion.

Earnings on Tap

Yahoo will release third-quarter earnings results after the close of business on Oct. 18, it said, but it will not hold an earnings call or host a webcast for investors due to the pending Verizon deal.

Yahoo had been under enormous pressure from investors and analysts to develop a strategy to compete in the modern world of social media, Web content and analytics.

A perception has taken hold that under the leadership of Marissa Mayer, Yahoo completely failed to develop products that would grow user engagement, fell further behind Google in the Internet search area, and spent way too much money on corporate expenses and noncore assets.

Yahoo confirmed in late September that it had been the victim one of the biggest data breaches ever — a 2014 hack that compromised a wide range of personal data belonging to at least 500 million Yahoo account holders: names, email addresses, dates of birth, hashed passwords, telephone numbers, and in some cases encrypted or unencrypted security questions.

The hack was state sponsored, Bob Lord, chief information security officer at Yahoo, wrote in an online post last month.

Russia was suspected of being behind the massive data breach, according to multiple reports.

The yahoo hack showed a level of sophistication consistent with a state-sponsored hack, but it is too early to draw any definitive conclusion, a law enforcement source familiar with the case told the E-Commerce Times.

Show Cards

Verizon should be able to walk away without any liability if need be, according to attorney Peter Vogel, a partner at Gardere Wynne Sewell.

During the due diligence period, it has the right to investigate the company’s financial statements and intellectual property, he pointed out, and that gives the parties the right to make changes in the sales price and scope of the deal.

“So it seems to me that Verizon could conclude that Yahoo’s business was so badly damaged by the cyberintrusion that the value of the business is greatly diminished, and if Yahoo disagrees that the deal could end at that point,” Vogel told the E-Commerce Times.

Verizon is likely to renegotiate a better deal or walk away entirely, said industry analyst Jeff Kagan.

“Before, acquiring Yahoo seemed like a good idea from Verizon’s point of view,” he told the E-Commerce Times. “However, now Yahoo is a double-sided coin, full of both good and bad.”

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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