The theft of confidential information from Yahoo in 2013, although only recently announced, has heaped doubt over the proposed purchase of Yahoo by Verizon. Many predict the final bill will be substantial and worse could follow – the FBI are investigating and could yet cause more problems. A reduced share price caused Verizon to reappraise the sale. For both parties the realization that damage occurring from the data theft has yet to be fully felt is a serious problem, making revaluing Yahoo much harder. Regardless of which route Verizon chooses to pursue, doubts have crept in about the future of the buyout.
Verizon could potentially ditch the purchase of Yahoo altogether. The brand is now damaged and despite growing revenues the market share is declining in online advertising. Were Verizon to retire from the agreement (triggering a clause which would see Yahoo pay $144.8m) the courts would become involved. Winning would involve demonstrating a ‘material adverse change’ had occurred since the price had been agreed upon. Problematically for Yahoo, shareholders are thought to be threatening legal action if the deal does not bring in the expected revenue, making it much harder for the company to accept demands to ensure the buyout goes through.
Alternatively Verizon could seek other purchases, but viable options are scant. Twitter is suffering from a range of serious problems and Pandora does not have the same level of users Verizon would inherit from Yahoo. In many regards the wider business environment will help to hold the deal together. Verizon has now committed to expansion predicated on mobile video; deviating would be difficult.