The price Verizon will have to pay to acquire Yahoo has been trimmed by $350 million after revelations of two significant data breaches in 2013 and 2014.
In July last year it was announced that Verizon had won the race to acquire the former web portal juggernaut Yahoo for $4.83 billion. Subject to regulatory and shareholder approval, the deal would see Yahoo integrated with another Verizon acquisition – AOL – to help the telecoms giant become one of the biggest players in the digital marketing industry.
Two months later, news broke that more than 500 million Yahoo accounts had been hacked in a 2014 data breach. In December, worse news was to come when a data breach dating back to 2013 was announced. The breach compromised user email addresses, passwords and dates of birth – data that could allow cybercriminals to locate more sensitive personal information elsewhere online.
Renegotiation of Acquisition Price Saves $350 Million
Following the revelation, the Yahoo Verizon deal was put on hold while the two companies assessed the implications of the data breaches and future possible impact. Negotiations over a revised acquisition price were also delayed by the involvement federal, state, and foreign government agencies investigating the hack; but finally a revised deal has been agreed.
On Tuesday, a joint press released revealed the revised price Verizon will have pay in order to acquire Yahoo is $4.48 billion. Yahoo´s CEO Marissa Mayer described the revised deal as “an important step to unlock shareholder value for Yahoo”. Ms. Mayer added that, despite the delays, the two companies have been working on more than 20 integration tracks to “bring Yahoo’s business into the fold”.
“Fair and Favorable Outcome” for Shareholders
Verizon´s executive vice president Marni Walden described the revised deal as a “fair and favorable outcome”, and although Yahoo shareholders may be relieved by the news, Verizon´s shareholders may be wondering why the haircut did not take more off the deal. Prior to the announcement, speculation existed that Verizon´s acquisition costs could have been reduced by up to $1 billion.
As a result of the announcement, shares in Yahoo! Inc. continued on their upward trend to approaching $46.00 – more than $10.00 above their prize when the Yahoo Verizon deal was first announced last July. The deal is expected to close during the second quarter of the year, with the two companies agreeing to share the legal and regulatory liabilities arising from the data breaches.
A Warning for CEOs and CFOs Everywhere
Although the $350 million haircut could have been a lot worse for Yahoo´s Marissa Mayer, the episode should serve as a warning to CEOs and CFOs everywhere to take a keener interest in their organization´s cyber-strategy. Investigations are ongoing into how the two cyberattacks occurred and, if it were not for Yahoo´s users maintaining their activity levels, the acquisition price could have been much lower.
As a result of the revised deal, Yahoo shareholders will receive about $0.37 less per share. Industry analysts speculated that the result would have been a lot worse for Yahoo shareholders were it not for Verizon deciding that the long-term benefits of the acquisition would be more beneficial than pulling out of the deal altogether.