Yahoo under scrutiny after latest hack, Verizon seeks new deal terms
NEW YORK: Yahoo Inc came under renewed scrutiny by federal investigators and lawmakers after disclosing the largest known data breach in history, prompting Verizon Communications Inc to demand better terms for its planned purchase of Yahoo’s internet business.
Shares of the Sunnyvale, California-based internet pioneer fell more than six per cent after it announced the breach of data belonging to more than one billion users late on Wednesday, following another large hack reported in September.
Verizon, which agreed to buy Yahoo’s core internet business in July for US$ 4.8 billion, is now trying to persuade Yahoo to amend the terms of the acquisition agreement to reflect the economic damage from the two hacks, according to people familiar with the matter.
The US No. 1 wireless carrier still expects to go through with the deal, but is looking for “major concessions” in light of the most recent breach, according to another person familiar with the situation.
Asked about the status of the deal, a Yahoo spokesperson said: “We are confident in Yahoo’s value and we continue to work towards integration with Verizon.”
Verizon had already said in October it was reviewing the deal after September’s breach disclosure. Late on Wednesday, it said it would “review the impact of this new development before reaching any final conclusions” about whether to proceed.
The company declined to comment beyond that statement on Thursday.
Verizon has threatened to go to court to get out of the deal if it is not repriced, citing a material adverse effect, said the people familiar with the matter, who asked not to be identified because the negotiations are confidential.
No court in Delaware, where Yahoo is incorporated, has ever found that a material adverse effect has occurred that would allow companies to terminate a merger agreement.
Nevertheless, the threat of a court case on the issue has been successfully used by companies to renegotiate deals, and experts said that some concessions from Yahoo are likely, given the magnitude of the cyber security breaches.
Renegotiating the deal’s price tag would be the simplest but also least likely scenario because the impact of the data breaches will not be apparent for some time, according to Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
A more likely concession would be for Yahoo to agree to compensate Verizon after the close of the deal, based on the liabilities that occur. The two companies may also agree to extend the close of the deal to allow for more time for information to come in on the impact of the breaches, Gordon suggested.
Verizon shares rose 0.4 per cent to close at US$ 51.81, in line with the S& P 500 Index Yahoo closed down 6.1 per cent at US$ 38.41.
Yahoo said late on Wednesday that it had uncovered a 2013 cyber attack that compromised data of more than 1 billion user accounts, the largest known breach on record.
It said the data stolen may have included names, email addresses, telephone numbers, dates of birth, hashed passwords and, in some cases, encrypted or unencrypted security questions and answers.
The company added that some of its partners were affected. One such partner, Europe’s Sky Plc, said Yahoo provides email services to its 2.1 million Sky.com email account holders, but it was unclear how many of those accounts were affected.
The announcement followed Yahoo’s disclosure in September of a separate breach that affected over 500 million accounts, which the company said it believed was launched by different hackers.
The White House said on Thursday the US Federal Bureau of Investigation was probing the breach. Several lawsuits seeking class- action status on behalf of Yahoo shareholders have been filed, or are in the works. — Reuters