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The Verizon-Yahoo Merger

The Deal

In July 2016, Verizon announced plans to acquire Yahoo for $4.8 billion.1 The announcement followed a period of decline for Yahoo, and an unsuccessful attempt to shift the company’s operation towards the mobile market. The company made numerous acquisitions, including social media site Tumblr, in an effort to broaden its audience.2 However, despite tripling its consumer base for mobile media over the past four years, Yahoo was unable to capture the audience it needed to survive as an independent company.3 The acquisition was attractive to Verizon, as the company sought to increase its presence in mobile media.4 The acquisition would take the form of a stock transaction, meaning that Verizon would acquire all of Yahoo’s assets and liabilities.5

The Breach

At the end of September, Yahoo confirmed that information associated with at least 500 million of its user accounts was stolen.6 The breach occurred in 2014, and included usernames, passwords, and phone numbers.7 The data breach will likely be expensive for Yahoo, as there have already been over twenty class action lawsuits brought against the company by consumers,8 and similar data breaches at other companies have resulted in costs exceeding half a million dollars.9 Although Verizon was only made aware of the breach at the time of the announcement,10 a filing with the SEC revealed that there were personnel within the company that had knowledge of the breach in 2014.11

The Consequences

The news of the data breach has Verizon wary of completing the deal. The stock deal would leave Verizon with all of Yahoo’s liabilities – including those connected with the breach.12 The agreement between the two companies includes a clause that allows Verizon to withdraw from the transaction in the case of an event that will have a material adverse effect on the operation of Yahoo’s business.13 Verizon believes that they have a reasonable basis for believing that the breach will materially impact the business, although they are still evaluating the whether or not to withdraw.14 Even with the revelation of the data breach, Verizon may have a difficult time escaping the agreement through the material impact clause, since no U.S. company has ever successfully defended the use of such a clause in court.15 At the very least, the breach will likely have a substantial impact on the price of the transaction. Verizon is reportedly looking for a one-billion-dollar reduction on the purchase price.16 Still, the full extent of the breach’s impact on the deal is not certain.

  1. Alex Sherman & Matthew Townsend, Verizon to End Yahoo Survival Fight With $4.8 Billion Deal, BLOOMBERG (July 24, 2016, 12:15 PM), 

  2. Seth Fiegerman, Why Marissa Mayer couldn’t save Yahoo, CNN (July 25, 2016, 10:06 PM), 

  3. See Vauhini Vara, Why Yahoo Couldn’t Adapt to the Smartphone Era, THE NEW YORKER (Feb. 9, 2016), 

  4. Hope King, Why Verizon wants to buy Yahoo, CNN (July 26, 2016, 11:04 AM), 

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

  6. Aarti Shahani, Yahoo Confirms Massive Data Breach By ‘State-Sponsored Actor’, NPR (Sept. 22, 2016, 4:33 PM), 

  7. Id. 

  8. Alyssa Newcomb, Yahoo Warns Verizon Could Pull Out of $4.8B Deal, NBC, 

  9. Caponi, supra note 5. 

  10. Shahani, supra note 6 

  11. Vindu Goel, Yahoo Knew of ‘State-Backed’ Hack in 2014, NY TIMES (Nov. 9, 2016), 

  12. Caponi, supra note 5. 

  13. David Shepardson, Verizon Says Yahoo Hack ‘Material’, Could Affect Deal, REUTERS (Oct. 13, 2016, 8:40 PM), 

  14. Id. 

  15. Id. 

  16. Caponi, supra note 5.