Yahoo! Inc. Shareholders Will Be Bracing as Verizon Deal Could Collapse
In 2016, many hoped that Yahoo! Inc. (NASDAQ:YHOO) would come out of the limbo it has experienced in recent years. It looked as if, thanks to Verizon Communications Inc. (NYSE:VZ), it was a done deal. Yahoo! stock rose to $44.00-$45.00, a level it has been at since the spring of 2015.
Verizon stock also rose when it formally announced last summer that it would buy Yahoo! Inc. Verizon would gain the valuable “Yahoo! Mail” service. It would also manage to amplify its AOL, Inc (NYSE:AOL) asset and gain social media presence in a single deal. Yahoo! stock managed to survive.
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But the Yahoo! deal promptly ended up on the brink. On a few occasions, doubts emerged, yet Verizon stayed the course on YHOO stock. The worst that Yahoo! stock investors were expecting was a reduced price for the company after a massive security breach was discovered.
Make no mistake, Verizon is the last hope for Yahoo! shareholders. The deal came in the wake of a drawn-out restructuring. It cut at least 1,500 jobs and launched a $400.0-million savings plan. Yahoo! Inc. shut down offices in Dubai, Mexico City, Buenos Aires, Milan, and Madrid. It also cut services.
Such was the hemorrhaging that Yahoo! Inc.’s most valuable asset became its 15% holding in Alibaba Group Holding Ltd (NYSE:BABA). That’s what one of the Internet pioneers was reduced to becoming. Having survived the initial barrage, the Verizon deal is once again on the chopping block.
But, this time, Yahoo! and its embattled CEO Marissa Mayer may not emerge unscathed. While most of America has been engaged in a debate over alleged Russian hacking swaying the presidential vote in favor of Donald Trump, on December 14, Yahoo! had to admit it suffered another major security breach.
Recent Yahoo! Hacking Revelations Are Latest in Long List
The latest Yahoo! Mail security breach was entirely separate from the one that emerged last September. The latter involved 500 million user accounts. The scope of this latest cyberattack is even greater. It could have affected as many as a billion accounts. This would make it the largest data theft in history. (Source: “Yahoo Discloses New Breach of 1 Billion User Accounts,” The Wall Street Journal, December 15, 2016.)
The attack happened in August 2013, according to Yahoo! Inc. But those qualified to observe such things only detected it now. The hackers managed to steal loads of personal information: names, birth dates, e-mail addresses, and telephone numbers. They also got their hands on the answers to security questions that users must pass to change their password in case of mnemonic lapses.
But Yahoo! Inc. assures that the hackers did not get access to banking details.
The company says affected users will be notified to change their passwords. The attack suggests that Yahoo! Inc., at least for the past few years, has suffered major security problems. Before the 2013 hack job, there was the 2012 cyberattack, involving 450,000 accounts that had already been affected. But the breadth of the last two breaches is unprecedented.
It’s not just Yahoo!, of course, that has shown vulnerabilities. In May 2016, “MySpace,” a social network, revealed that 360 million accounts had been compromised. A few days earlier, the platform dedicated to professionals, “LinkedIn,”—LinkedIn Corp (NYSE:LNKD)—had recognized that the data of 117 million of its members could be bought on specialized sites.
For Yahoo!, the Big Question Remains: What Will Verizon Do?
The revelation of this second piracy episode doesn’t bode well. It is in the process of selling its Internet activities to Verizon for $4.8 billion. Announced at the end of July, Verizon can still get out without a messy divorce. The transaction has still not been finalized.
For now, Verizon will wait for the result of Yahoo! Inc.’s internal investigation. Verizon will want to know whether Yahoo! has knowingly hidden information. Yahoo! said it was unaware of the cyberattacks when it accepted the offer.
Still, even if Yaho! clears the legal checks, it will still appear weak from a corporate standpoint. At this point, Yahoo! stockholders may want to forget about the $4.8 billion. Verizon will demand a discount. It will be a major discount, because no other buyer will touch Yahoo! Inc. at that price and with that security burden.
At this point, few observers believe that Verizon will give up on Yahoo! Inc. The mobile communications carrier needs the acquisition to reach a critical size in the online advertising market, in order to better compete with Google (owned by Alphabet Inc (NASDAQ:GOOG)) and Facebook Inc (NASDAQ:FB). In September, Robert Peck, a SunTrust Robinson Humphrey analyst, was expecting a $100.0–$200.0 million discount. (Source: “Yahoo hack renews doubts about Verizon deal,” CNN, December 15, 2016.)
Don’t be surprised if Verizon walks away with Yahoo! for less than $4.0 billion (much less). But don’t be sorry for Marissa Mayer. If fired by Verizon, the Yahoo! CEO will soften her fall with an agreed-upon $44.0-million golden parachute.
Just for fun, remember that not long ago, Yahoo! Inc. was worth $100.0 billion.
