The Strategist

Verizon loses trust in Yahoo

12/16/2016 - 14:10

Verizon telecommunications company, intends to acquire operating business of Internet Corporation Yahoo, may lower the offer’s price, or even abandon the deal, Bloomberg reported citing a source familiar with the situation. According to the publication, the new doubts have been caused by information about hacking 1 billion Yahoo’s users accounts.

Kārlis Dambrāns via flickr
Kārlis Dambrāns via flickr
As explained by the source, part of Verizon employees, headed by AOL’s Executive Tim Armstrong, is still committed to integration with Yahoo. However, a second group of people, including Verizon’s General Counsel Craig Silliman, points out at damage caused by the hackers, and is considering options to undercharge the transaction, or even complete refusal. "Verizon wants Yahoo to claim responsibility for damage from hacker attacks," - the source added.

Earlier in July, Verizon announced its intention to buy core assets of Yahoo for $ 4.83 billion. The deal was planned to be closed in the first quarter of 2017.

On Wednesday, Yahoo announced the largest ever data theft. According to the company, hackers could get access to accounts of more than 1 billion users in August 2013. The stolen data may include user names, birth dates, email addresses, telephone numbers, encrypted passwords, and, in some cases, encrypted and unencrypted answers to test questions. Yahoo believes that information about bank accounts or credit cards have been saved. 

The attack is yet another blow to reputation of the internet corporation, which has already had numerous woes in recent years. Earlier in September, Yahoo reported hackers stole data on 500 million users accounts in late 2014. Then, Verizon Communications said that it could break the acquisition agreement. On Wednesday, after the next data theft has been revealed, Verizon’s representative said the company "will explore impact of new development events before making a final decision."

Verizon is going to buy Yahoo, so it’s not a surprise that the telecommunications company is interested that everything going smoothly. Now, however, the transaction is not as clear as it seemed first. Despite the fact that AOL’s executive Tim Armstrong and his team (AOL is now part of Verizon) wants to integrate Yahoo’s products into Verizon’s business, another group of experts has been examining possibility of reducing the transaction’s price, or even complete rejection. This was stated by Bloomberg’s source, who asked to remain anonymous. The buyer in the current situation wants Yahoo to accept full responsibility for this incident.

The second group is headed by Verizon’s General Counsel Craig Silliman. He and colleagues are assessing damage from the leak, and are pushing on Yahoo, forcing the company to make allowance for the leakage.  "As we have reported, we continue to assess the situation while Yahoo is doing the same. We will have impact of this factor (hacking) analyzed before making final conclusions", - said Verizon.

In autumn, Silliman warned Yahoo about "material consequences" of the previous hack, already trying to influence the company’s management. More specifically, he asked to reduce amount of the previously announced transaction. Then, Yahoo’s shares fell 6.5% to $ 38.25. and Verizon rose about 1% to $ 52.07.

Most likely, Verizon’s representatives are unlikely to abandon the deal. The company's management is still sure this step would make sense for the core business, and would positively affect development strategy of Verizon itself. The telecommunications company is going to expand through development of mobile media assets, and advertising business. In this case, hundreds of millions of Yahoo’s users wouldn’t go amiss.

By the way, today some of them are suing Yahoo, accusing the company in lack of diligence in protecting information of its clients. The very first lawsuit came just a few hours after the burglary was reported. "Yahoo does not manage to provide appropriate level of privacy protection of confidential information of its users. This information is constantly compromised and remains vulnerable," the complainant said in the lawsuit. 

Apparently, he is right somehow. On the other hand, some experts suggest that users' data has been stolen through a breach created in time for the NSA. Repeated break-ins, which use the same methods of data theft, cannot help but attract attention. It is hard to say now whether there is some kind of connection, or it is just a "conspiracy theory". In any case, conclusions can be made only after Yahoo and Verizon have the situation thoroughly analyzed.