Yahoo Stock Cost Shareholders Some Sleep
The size of the scandal was growing larger by the day.
This week, revelations about a big security breach at Yahoo! Inc. (NASDAQ:YHOO) were shocking enough that many shareholders worried that Verizon Communications Inc. (NYSE:VZ) might throw in the towel and renege on its intent to buy a big chunk of Yahoo stock. Yet YHOO Stock has actually lost relatively little.
Yahoo stock has lost a mere 1.5% in the past month. YHOO stock shares actually gained a half percentage point in the past week. Even as the scandal over its hacked emails intensified, Yahoo kept a steady course. Verizon stock, rather, lost 6.42% over the past month. But the question is, will Verizon release Yahoo like the hot potato that it’s become?
Yahoo the company, if not YHOO stock, has endured a tough year in the media. The company, and especially its CEO Marissa Mayer, came under pressure for failing to deliver sufficient growth. Then, after Verizon decided to take over most of its assets, especially to gain control over the popular Yahoo e-mail service, the security scandal broke out. Rather than appeasing Yahoo mail users, the more days that have passed, the more revelations about security breaches that have emerged.
Some Kind of Negative Repercussion Was Inevitable for Yahoo
Yahoo shareholders may rest better now that Verizon has hinted at how it expects to play this. It won’t leave Yahoo stock on the side of the road. But the negative press that Yahoo has received—500 million hacked accounts and electronic monitoring of users—will influence the final price that Verizon will pay. A Columbus Day sale is in order, but at Black Friday prices.
Indeed, Verizon will likely demand a nice discount to proceed with the acquisition of Yahoo. Some sources suggest that the discount might be as much as $1.0 billion. Considering the original purchase price that was agreed upon at $4.8 billion, that’s 20.8% less for the Internet company. Such is the extent of the scandal resulting from Yahoo’s e-mail monitoring program on behalf of the FBI—and the 500 million hacked accounts—that Verizon has priced it at a billion. (Source: “Report: Verizon wants $1 billion discount after Yahoo privacy concerns,” TechCrunch, October 6, 2016.)
The news is good for Verizon and those who own Verizon stock. As much as the e-mail scandal puts Yahoo’s CEO in a bad light (she apparently decided not to put up a legal fight against the FBI’s requests to monitor emails), it does show that Verizon’s management will try to get the best deal for its shareholders. (Source: Ibid.)
Tim Armstrong, head of AOL—owned by Verizon—has discussed the situation with Yahoo executives. Armstrong reportedly told Yahoo that Verizon would abandon the deal without a price reduction. Still, Marissa Mayer must protect Yahoo shareholders. (Source: “Verizon wants $1B discount on Yahoo deal after reports of hacking, spying,” New York Post, October 6, 2016.)
Giving Up Over 20% Might Not Please Yahoo Investors
But, despite the apparent zeal of Verizon’s discount demand, Yahoo shareholders might get a break. Tim Armstrong, who as AOL boss would oversee the integration of Yahoo into Verizon—forming a company with a billion users—would likely negotiate a more mutually acceptable arrangement.
Nobody should be surprised that Verizon hopes to take advantage of Yahoo’s misfortunes. So, a reduction in price is inevitable. But, while Verizon shareholders will ultimately get a small lift, if you own YHOO stock, you will take a hit. How big or how small—if a deal can be concluded at all now—depends on the success of the doubtless intense negotiations.