February 15, 2017 / 8:33 PM / 8 months ago

Yahoo paying small price for big hacks

NEW YORK (Reuters Breakingviews) - Yahoo Chief Executive Marissa Mayer may soon be breathing a sigh of relief. The $40 billion internet company is on the verge of cutting the price of its core-business sale to Verizon Communications by $250 million to $350 million, less than a 10 percent discount to what was originally agreed, according to media reports. That would be a small price to pay for massive hacks that affected over 1 billion users’ account data.

Yahoo Finance editor-in-chief Andy Serwer holds a card as he speaks at the Yahoo Finance All Markets Summit in New York, U.S., February 8, 2017. REUTERS/Lucas Jackson

In an effort to add online value to its increasingly commoditized telecommunications business, Verizon acquired onetime internet darling AOL and last July agreed to buy Yahoo’s advertising and search businesses for $4.8 billion. That left Mayer, who will be stepping down from the board of the rebranded Altaba once the deal closes, with little to worry about except huge stakes in Chinese e-commerce behemoth Alibaba and Yahoo Japan.

Things soon started unraveling with the muddled disclosure of a Yahoo security breach dating back to 2014 in which information for at least 500 million accounts was compromised. Then the company revealed another earlier hack possibly affecting over 1 billion users.

The potential financial and reputational costs opened the door for a renegotiation or, conceivably, for Verizon to walk away. The legal bar to abandon a transaction because of an unexpected hit to an M&A target’s business is a high one, however. Now it seems Verizon is settling for a relatively small reduction in the price it is paying, although a Reuters source said the two companies also would share the cost of any lawsuits relating to the data breaches.

That may save Verizon more money over time. Indeed, just as news broke of a possible settlement on Wednesday, Yahoo was issuing fresh warnings to users about potentially malicious activity on their accounts.

For now, the reputational hit of serious and initially undetected flaws in Yahoo’s security is being valued, in round numbers, at 25 cents per affected customer. Yahoo reported about $5 billion of revenue last year for its more than 1 billion users. On a simple calculation, the deal-price discount only covers the loss of one in 20 of them for one year. That seems a light penalty.

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