Verizon is doubling down on language it used last week to describe the massive, historic data breach affecting an estimated 500 million Yahoo accounts — a move that puts even greater pressure on the beleaguered Web company as it seeks to close a sale to the telecom giant.
At the moment, “we have to assume [the breach] will have a material impact on Yahoo,” said Verizon chief financial officer Fran Shammo on an investor call Thursday.
A change in Yahoo's business that's deemed “material” is one that could make the Internet firm much less attractive to Verizon financially, and under the terms of the deal could allow Verizon to back away from the transaction.
Verizon's lawyers talked by phone with Yahoo for the first time Wednesday to discuss the impact of the breach on Yahoo's business, according to Shammo.
Verizon will take “some time” to determine the fate of the deal, Shammo said, unless Yahoo “comes up with a different process” for interacting with its buyer.
The telecom company may be buying Yahoo in hopes of luring Internet users to its content, as well as using the behavioral data generated by users and visitors to sell targeted advertising, according to analysts.
That strategy could suffer setbacks if Verizon concludes it cannot follow through with buying Yahoo. It may also be affected by a looming regulatory effort to force Verizon and other Internet providers to ask their customers' permission before using their personal data for advertising, according to business analysts.
At the same time, analysts say, the Yahoo breach may provide an opportunity for Verizon to abandon its current deal with Yahoo and seek a discount on the company, which could bolster Verizon's strategy in the long run.
“I can't think of a reason why Verizon wouldn't attempt to negotiate a lower price,” said Walt Piecyk, an analyst at BTIG, in an interview last week.
If Verizon were to conclude that Yahoo's data breach had a material impact on the company, it also could set a major precedent for other corporate acquisitions, said Paul Gallant, a telecom analyst at the investment firm Cowen & Co.
“The obvious implication of this situation is that future acquisition targets need to be extremely proactive about monitoring and disclosing data breaches ASAP,” said Gallant.
Other analysts expressed surprise that Yahoo did not come forward with the information sooner, and said Verizon is equally to blame for going into the deal “blindly.”
“Verizon should have protected itself and Yahoo should have disclosed known information,” said Jeff Kagan, an independent industry analyst. “The way I see it, both were sloppy in this deal.” Verizon should have asked deeper questions of Yahoo regarding data breaches before it agreed to purchase the company, he added.
The deal is expected to close by the end of the first quarter. But speaking to reporters last week, Verizon general counsel Craig Silliman said that timeline could be thrown off by the ongoing investigation into the Yahoo breach. It is up to the Internet company to prove that it is still worth as much as what Verizon agreed to pay, executives said.