Market watchers like us were eagerly waiting to see whether Yahoo! Inc.’s YHOO late admission of the massive 2014 cyber-attack would affect Verizon’s VZ decision to acquire its core assets for $4.8 billion, especially after the news triggered a number of notable incidents.
Following the news, Yahoo was not only sued but also faced senators’ ire for the late confirmation. A Reuters report per which Yahoo developed a custom software program to scan all of its users’ incoming emails for particular information demanded by the FBI caused further uproar and fueled privacy concerns.
We opined that the disclosure might have a significant impact if Verizon finds a material adverse change (MAC) in the period between signing and closing.
Yesterday, Reuters reported that Verizon Communications (VZ) has found a "reasonable basis" of a material impact that could cast a cloud over the deal.
Verizon's general counsel Craig Silliman confirmed in a statement that the company has received preliminary briefings but it’s expecting a demonstration of the full impact on Yahoo’s part. Till that time, Verizon will keep its final decision on hold.
He stated Verizon is "absolutely evaluating (the breach) and will make determinations about whether and how to move forward with the deal based on our evaluation of the materiality." Silliman however declined to comment on renegotiation of the purchase price.
Yahoo, on the other hand, expressed confidence over its value and said that it’s looking forward to complete the deal.
A few days after confirming the data breach, Yahoo officials tried to put up some defense by stating that if there were any significant consequence, that would have been reflected in its results. They also stated that the risk associated with the theft was low as all stolen user passwords were encrypted.
YAHOO! INC Price
What Experts Say
The deal contains a provision per which Verizon can cancel or renegotiate if the transaction value is affected by a material adverse change in Yahoo’s business, assets, operations or financial condition.
According to legal experts, this provision places Verizon in a position to negotiate or cancel the deal but courts have revised its use making enforcement difficult.
We believe that Verizon, on being aware of the fact that Yahoo is troubled to a great extent and will find it extremely difficult to look for another buyer, is most likely to try and extract a better price.
Currently, Yahoo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Stocks worth considering in the broader technology sector include Ambarella Inc. AMBA and Micron Technology, Inc. MU. Both sport a Zacks Rank #1. While Ambarella has a long-term EPS growth rate of 14.8%, Micron has a long-term EPS growth rate of 10%.
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