Yahoo’s disclosure this week that more than 1 billion accounts may have been compromised in the largest hack ever has raised new doubts about telecommunications giant Verizon’s pending acquisition of the struggling tech company.
Verizon agreed to buy Yahoo for $4.83 billion in July, but it appeared interested in renegotiating the price after the Sunnyvale, Calif., company revealed in September that it was the victim of a data breach affecting some 500 million user accounts. News on Wednesday of the larger breach, which is believed to be unrelated to the previous hack, could mean a further price reduction or even the cancellation of the entire deal, analysts said.
Verizon hasn’t signaled that it wants to walk away from the deal, but that hasn’t entirely eased investor concerns.
Yahoo shares dropped nearly 5% to $38.45 on Thursday, the day after the company disclosed the hack. As of publication time, Yahoo was trading at $38.59.
“It is a big drop that signals investors don’t expect the Verizon deal to close at its original price, if at all,” said Erik Gordon, a professor at the University of Michigan Ross School of Business.
“The question is whether Yahoo can close the deal by offering a price adjustment,” Gordon said. Other options include Yahoo’s agreement to use its own funds to cover any legal liability, he said.
A Yahoo spokesman said the company continues to work toward closing the deal early next year. Verizon did not respond to a request for comment.
For Verizon, the two security breaches could raise concerns about Yahoo’s legal liability, its overall commitment to security and tarnished reputation, experts said. Those worries may be assuaged by the fact the intrusions do not appear to have compromised customers’ financial data, and the unlikelihood of a mass defection of users because many customers consider switching email providers tedious.
Still, it’s likely that Verizon will seek to lower its purchase price to adjust to Yahoo’s flagging condition, according to Neil A. Doshi, a senior Internet analyst at Mizuho Securities.
Companies generally lose between zero and 5% of their market capitalization after a data breach, Doshi said. That Yahoo’s market capitalization has dipped further than that range — falling as much as 6% before rebounding slightly — suggests that the blowback from this breach may outpace past hacks, Doshi said.
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