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What's going on?
About six weeks ago (after Verizon agreed to buy Yahoos operating business for almost $5 billion), news broke that at least 500 million Yahoo user accounts had been hacked. On Thursday, Verizon warned that the hack could be the basis for renegotiating or even tearing up the deal to buy Yahoo.
What does this mean?
An agreement to buy another company is never totally done until the two companies have been legally combined, which usually takes at least several months. During this time, certain things are finalized (like any necessary approvals from the government). But there is also usually a clause that if anything materially adverse comes to light, then the deal can be annulled. Verizon isnt trying to cancel the deal (at least, not yet), but it said on Thursday that the onus is on Yahoo to demonstrate the hack is not materially negative for their business.
Why should I care?
For the stocks: Verizon might have leverage to renegotiate the deal.
Its not clear how important this hack is to the value of Yahoos business. Some say its now “normal” for an internet company to get hacked, while others claim that Yahoos users are its crown jewels and perhaps the hack has put a dent in its relationship with them. Even if Verizon doesnt want to annul the deal, it might use the hack as leverage to renegotiate more favorable terms.
The bigger picture: Invoking the materially adverse clause is difficult.
No US company has ever successfully invoked the clause in court in order to get out of a deal. So, at first blush, Verizons options are limited. But Yahoos hack took place years ago and only came to light weeks after it agreed to sell to Verizon (though Yahoo claims that it didnt know about the hack prior to the deal). Oh, and its the biggest hack in history. Verizon might have more leverage than a typical acquirer who tries to invoke the clause.
Originally posted as part of the Finimize daily email.
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