The latest victim of the massive hack which compromised the information of more than 1 billion users may be Yahoo itself. According to sources with knowledge of ongoing negotiations between Verizon and Yahoo, the two companies are at odds with how to reprice their deal.
Some sources have intimated that Verizon and its lawyers are considering the nuclear option of petitioning a court to release them from any liability in its negotiations with Yahoo. This would allow the telecom company to walk away from its planned buyout of Yahoo without any penalty.
Several M&A analysts believe Verizon might have a solid argument as the Yahoo hacks point to a lack of governance at the internet company and these failures of management could ‘materially impact’ the company’s valuation.
The key phrase here is ‘materially impact’. While Verizon would have to prove its case, observers believe sufficient evidence might be available to show that Yahoo is not worth what the company say it is.
If Verizon is able to extricate itself from negotiations with Yahoo, then this causes more problems for the troubled internet company. First, the company is bound to face several class action lawsuits stemming from the security breaches. Second, Verizon’s claim that Yahoo is not accurately priced would undoubtedly raise questions from regulators and shareholders alike. In the case of regulators, the company would be subpoenaed, and fined, and possibly sanctioned, while it could also face lawsuits from shareholder groups and board challenges from activist investors.
Caught in the crosshairs of the news is Yahoo CEO Marissa Mayer, who many believed was looking at the Verizon deal as her last chance to resurrect the once company. While Mrs. Mayer was brought in to turn around the struggling company, her achievements have uneven at best.
The company lost more than $2 billion in free cash in 2015 and analysts believe that Yahoo might have less than $1 billion in cash available. As such, it is difficult to see how the company is worth the $4.8 billion which Verizon originally pledged to pay for the company.
While analysts don’t believe Yahoo will file for bankruptcy, it is possible that the fallout from the news of these events might push the company over the brink. Adding to the injury was a Bloomberg report that information from the hack may contain information on Government employees – including those who work for the CIA, FBI, and NSA.
If this is correct then it is likely that Mrs. Mayer and her management will be called before Congress to explain how it happened, why the company did not know about it, and what they are doing to address the issue. These hearing might be part of a broader initiative on addressing cybersecurity issues in government and industry.
Shares of Yahoo and Verizon were trading up on Friday based on strength in the broader market.