Breakingviews: Verizon shareholders eye Yahoo risk

Published Fri, Oct 7 20164:13 PM EDT

Breakingviews

Jennifer Saba

Verizon is getting nervous. The telecom titan may seek to lop $1 billion off its agreed $4.8 billion price to buy Yahoo 's advertising and search businesses, the New York Post reported on Thursday. A massive hack and revelations about email snooping are turning Yahoo toxic. More from Breakingviews : HNA's $10 bln leasing bet could fly Earlier this week, Reuters reported that Yahoo complied with a national security-related request from the U.S. government to search for information in users' emails. The internet firm had built a custom program to do the sweep on customer accounts. It's an unusual move, experts told Reuters, and it prompted the exit of a Yahoo chief security officer. Yahoo was already dealing with the fallout of what's shaping up to be the largest cyber attack in the United States by what the company says was a state-sponsored entity. Sensitive information like birth dates and telephone numbers for at least 500 million accounts was stolen – some two years ago. These incidents have come to light only after Verizon agreed on July 25 to purchase Yahoo's core assets. The deal isn't expected to close until early next year, and the recent security and privacy concerns add a layer of complexity. Verizon could even test provisions in the merger agreement that specifically address security breaches and unauthorized access. Yet to escape the merger, Verizon might have to show that the cyber issues would have a material adverse effect on Yahoo's business, and courts set that bar high. Neither the $200 billion telecom giant nor Yahoo may want to go that far. If Verizon was truly convinced in the first place that Yahoo would work well with its AOL assets as a challenger to Alphabet' s Google and Facebook , then it could simply aim to reduce the price. The equation also involves Verizon's shareholders, however, and some may think the risk is now too high. Email is one of Yahoo's main services and attracts millions of users – and it's now tarnished. People will defect, and new users may be harder to come by. Some investors may also wonder whether these two ill-timed incidents are the only problems. What seemed a relatively small acquisition is turning into a big headache. One option for Verizon would be to take its chances walking away. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

A pedestrian checks his mobile phone while walking past a Verizon Wireless store in San Francisco, California.

David Paul Morris | Bloomberg | Getty Images