Breakingviews: Verizon poor dealmaking turning it into home for charity cases

Published Tue, Mar 14 20172:42 PM EDT

Breakingviews

Jennifer Saba

Yahoo Chief Executive Marissa Mayer and her board know how to play a bad hand. The beleaguered internet company faced demands from Verizon to cut by a fifth the $4.8 billion it had offered for Yahoo's core businesses. Instead, the telecom firm accepted a much lower concession. The trouble started in the fall after Yahoo disclosed two huge security breaches that occurred in 2013 and 2014. That appeared to give $200 billion Verizon a case of buyer's remorse. They had just, in July, agreed to buy Yahoo's advertising and search businesses; now executives pondered if they should get out of the deal altogether, worried that the hacks may have left the value of two divisions seriously impaired. More from Breakingviews : Jack Ma's Ant march may be worth slowing Yahoo's proxy statement, released on Monday, provides more details. On Feb. 1, Verizon Chief Executive Lowell McAdam told Yahoo it was weighing whether to pursue three options: the parties could mutually agree to terminate the deal; Verizon could wait until Yahoo worked through the evaluation of the impact of the breaches; or Yahoo could accept almost $1 billion less for the assets. Instead, Verizon ended up consenting to Yahoo's counterproposal of dropping the price by just $350 million, made by Yahoo director Thomas McInerney on Feb. 9. Granted, fighting Yahoo would have entailed a difficult, lengthy and costly court battle, with no guarantee of success. Another factor that could have influenced Verizon is Yahoo's user engagement – an important metric and one of the reasons for buying the assets. This showed that people stuck with Yahoo's services after the hacks were announced. Trouble is, Verizon is on the hunt to offer more to its customers than just a wireless connection. That has prompted McAdam to go on a spending spree for internet has-beens like Yahoo and AOL. Its dealings with Mayer's crumbling empire have given Verizon the appearance of becoming a home for charity cases. Other duds in need of a buyer now know where to look. For more independent commentary and analysis from Reuters Breakingviews, visit breakingviews.com

Verizon chairman and CEO Lowell C. McAdam

David Paul Morris | Bloomberg | Getty Images

The trouble started in the fall after Yahoo disclosed two huge security breaches that occurred in 2013 and 2014. That appeared to give $200 billion Verizon a case of buyer's remorse. They had just, in July, agreed to buy Yahoo's advertising and search businesses; now executives pondered if they should get out of the deal altogether, worried that the hacks may have left the value of two divisions seriously impaired.