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The Fallout of the Yahoo Hack

This post is an update of my previous post covering the Verizon-Yahoo merger.1

The Effect on the Verizon-Yahoo Merger

Amidst the negotiations for Yahoo’s acquisition by Verizon, Yahoo revealed that its customer data had been stolen in a cyber-attack – with Verizon reportedly looking for a $1 billion reduction in the price.2 A recent Yahoo filing revealed that Verizon CEO Lowell McAdam initially suggested a price cut of up to $925 million, and the possibility of dropping the deal, to one of Yahoo’s board members.3 The two eventually reached an agreement on a final price of $4.48 billion – $350 million less than the initial offer.4 The hack not only devalued Yahoo in the deal, but will also continue to cost both companies down the road. There have been numerous class action lawsuits filed against Yahoo,5 and Verizon has agreed to split litigation costs.6

The Department of Justice Case

The weakness in Yahoo’s security was incredibly costly for the company, but this cyber-attack was not ordinary. When the data breaches first came to light, Yahoo claimed that the attacks were state-sponsored.7

Yahoo’s claim was validated on March 15, when the U.S. Department of Justice announced that it would bring charges against four individuals involved in the Yahoo hacking.8 Amongst the four individuals were two Russian intelligence officers.9 The Department of Justice alleged that the group targeted Russian and American government officials, in addition to the other accounts.10 While two of the suspects have been arrested, the two Russian officers have not.11

Yahoo Assistant General Counsel Chris Madsen reported that the “indictment unequivocally shows the attacks on Yahoo were state-sponsored.”12 A state-sponsored attack would likely be more difficult to repel than a typical hacking attempt. “You’re pitting U.S. corporations against state-sponsored activity, and no matter how good you are as a company, that is an unfair battle,” said Jim Pastore, a member of Debevoise & Plimpton’s Cybersecurity & Data Privacy practice.13 Still, the large amount of litigation does substantially devalue the company,14  so it would be impossible to separate this in price negotiations.

The legal consequences of the Yahoo hack will continue to unfold in the class action lawsuits and the DOJ’s prosecution of the hackers.


  1. Matthew Dolloff, The Verizon-Yahoo Merger, MBELR Online (Jan. 22, 2017), http://mbelr.org/the-verizon-yahoo-merger/

  2. Steven L. Caponi, The Yahoo Breach: M&A Lessons for Corporate Fiduciaries, 19 Mergers & Acquisitions L. Rep. (BNA) 1781, 1782 (Nov. 28, 2016). 

  3. Brian Womack, Verizon Suggested Price Cut of Up to $925 Million for Yahoo Deal, Bloomberg (Mar. 31, 2017), https://www.bloomberg.com/news/articles/2017-03-13/verizon-suggested-price-cut-of-up-to-925-million-for-yahoo-deal

  4. Seth Fiegerman, Verizon Cuts Yahoo Deal Price by $350 Million, CNN (Feb. 21, 2017), http://money.cnn.com/2017/02/21/technology/yahoo-verizon-deal/

  5. Alyssa Newcomb, Yahoo Warns Verizon Could Pull Out of $4.8B Deal, NBC, http://www.nbcnews.com/tech/tech-news/yahoo-warns-verizon-could-pull-out-4-8b-deal-n682126 

  6. Fiegerman, supra note 4. 

  7. Vindu Goel, Yahoo Employees Knew in 2014 About State-Sponsored Hacker Attack, New York Times (Nov. 9, 2016), https://www.nytimes.com/2016/11/10/technology/yahoo-employees-knew-in-2014-about-hacker-attack.html?_r=0

  8. US Charges Russian Spies over Yahoo Breach, BBC, (Mar. 15, 2017), http://www.bbc.com/news/technology-39281063

  9. Id

  10. Id

  11. Id. 

  12. See Id. (citing Chris Madsen, Russian Hackers and Government Officers Indicted in Connection With Yahoo Security Incidents, Tumblr (Mar. 15, 2017), https://yahoo.tumblr.com/post/158438180334/russian-hackers-and-government-officers-indicted?soc_src=mail&soc_trk=ma). 

  13. Brian Womack & Jordan Robertson, Yahoo Security Lapses Laid Bare as Russia Blamed for Hack, Bloomberg (Mar. 17, 2017), https://www.bloomberglaw.com/search/results/cdaf51a77cf727707653bfc46dd0fe2d/document/X1A707PK000000

  14. See Fiegerman, supra note 4. 

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