Yahoo Stock Could Tumble as Hackers Put Verizon Deal in Doubt
It appears as if investors remain optimistic that Yahoo! Inc. (NASDAQ:YHOO) and Verizon Communications Inc. (NYSE:VZ) will conclude their deal. But, a “significant and serious” data leak at Yahoo, affecting hundreds of millions of users, threatens to bring down the value of Yahoo stock. By association, it also compromises Verizon stock.
The data leak could alter the sale agreement between Verizon and Yahoo. Indeed, last August, a “pirate” or hacker had sold information related to some 200 million Yahoo user accounts dating back to 2012. Yahoo is under pressure to confirm the massive breach of data. Hundreds of millions of users have been affected, according to the web site Recode. (Source: “Yahoo Has Reportedly Suffered a Massive Data Breach,” Fortune, September 22, 2016.)
This could certainly force Yahoo stock down.
The data breach, and especially an admission from Yahoo, puts an obstacle to the Verizon deal with Yahoo. Under the plan, Yahoo will sell its e-mail service and other Internet assets to Verizon Communications for $4.8 billion. Even after all the uncertainty over the company’s sale that culminated in the Verizon purchase last July, there is more bad news for Yahoo stock.
Have Hackers Compromised the Yahoo-Verizon Deal?
Indeed, the Yahoo sale to Verizon has suddenly moved from a guaranteed business class seat to a standby status. Recode sources reported that the leak was “important and serious”. (Source: Ibid).
Earlier this year, Yahoo had mentioned a survey on an alleged leak of data involving 200 million user accounts, which was sold online by hackers. (Source: “200 Million Yahoo Accounts Hacked? What to Do Now,” Yahoo! Tech, September 22, 2016.)
Last August, a hacker named “Peace” published information suggesting he was selling the IDs of 200 million Yahoo users for the ridiculously low sum of $1,800. The sold data included names, passwords, and personal information such as birth dates and e-mail addresses. Yahoo had mentioned at the time it was aware of the breach, but the company had refused to confirm the hack, merely stating it would investigate.
This breach might be worse, and Yahoo shareholders are getting worried. This is because the $4.8-billion deal, whereby Verizon buys the totality of YHOO stock, has not formally concluded. Yahoo shareholders still need to approve it. Verizon got word of the leak over the past few days, but is refusing to elaborate on how this affects its takeover.
Yet, despite the problems that hackers have caused, YHOO stock has proven to be resilient. The rumors concerning the alleged hacker attack have had no negative effect whatsoever. Rumors of the leak started a few days ago, but Yahoo shares are trading some 1.50% higher. A similar breach at the expense of LinkedIn Corp (NYSE:LNKD) last June did not result in Microsoft’s offer being revoked. Not only did Microsoft go ahead with the LNKD acquisition, it agreed to pay a steep $26.0 billion.
There is little chance, unless there are some prominent masochists among them, that Yahoo’s investors would reject the deal with Verizon. True, Verizon could choose to re-negotiate the deal—offering a lower price—but, in the demand for ready-made content and user numbers, Verizon itself would not let the breach compromise its larger vision.
In the still highly likely event that the Verizon deal goes through, the new Yahoo—which would change its name—would merely control its shares in Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA) and its shares in Yahoo Japan, which is co-owned by Japan’s SoftBank. Verizon, meanwhile, will emerge as the owner of Internet services, including e-mail, “Flickr,” and “Tumblr.” Verizon needs that kind of immediate access to social media.
Doubts About Yahoo Deal Still Exist, But They Are Few
If there were doubts about the Yahoo-Verizon deal, you would not expect VZ shares to have closed almost one percent higher in New York. Certainly, the deal is not done until all the regulatory procedures are concluded. There is always a risk, Verizon investors will demand a “discount.” This is because the hackers’ activities were known to Yahoo even last July. (Source: “Yahoo Says at Least 500 Million Accounts Breached in Attack,” Bloomberg, September 22, 2016.)
The biggest risk is to Yahoo CEO Marissa Mayer’s reputation. The hacking and how she managed the situation, according to Bloomberg, confirms the bad job she did as CEO. Mayer failed to innovate and protect the Santa Clara, California-based company. (Source: Ibid.)
There is also the chance that the July hack job is not the same as the one leaked in the past few days. (Source: “Could Yahoo Hack Allow Verizon to Pull the Plug on their Deal?,” Fortune, September 22, 2016.)
This would at least partially exonerate Yahoo, because it happened after the due disclosures at the time the deal was announced.
Finally, Verizon, which already owns AOL, stated last July that it needed to find new sources of revenue beyond the mobile telephone market. It wants to get a piece of the growing and lucrative sector of online advertising. That’s where Google (Alphabet Inc. (NASDAQ:GOOG)) and Facebook Inc. (NASDAQ:FB) reign supreme.
By acquiring Yahoo, Verizon will become a serious competitor in mobile media. At the purchase price of $4.8 billion, there are few properties able to rival Yahoo’s ability to address Verizon’s ambitions. Hackers have targeted major web providers, services like LinkedIn, and the U.S. government. Ultimately, all parties concerned have an interest in getting the Yahoo-Verizon deal done, that’s why I remain bullish on it.