On July 25, Verizon announced plans to buy once-mighty internet company Yahoo for $4.8 billion. Yesterday, Yahoo announced that it has been the victim of a hacking attack that compromised at least 500 million users.
Depending on what Yahoo executives knew and when they knew it, the deal itself — essentially a lifeboat for a business Microsoft offered $45 billion for in 2008 — could be in jeopardy.
The hack is likely to bring Verizon back to the negotiating table for some adjustments and could even give the telecom conglomerate an escape hatch.
The July 23 merger agreement included a section where Yahoo claimed that, to its knowledge, there had been no security breach or loss, theft or unauthorized access to its data. If Yahoo knew about this hack before July 23 — and the company admitted on Sept. 22 that it happened in 2014 — that would be a breach of Yahoo’s representation to Verizon and could allow the buyer to nix the whole thing.
One dealmaker told TheWrap if he was on the Verizon board, he’d take that opportunity.
“This is not a retailer like Target getting hacked,”said a veteran private equity executive, who requested anonymity because he is actively working on deals and isn’t authorized to speak publicly. “It’s their core business.”
“It’s a data company,” he continued. “If they can’t f—ing protect their data, why does anyone want to buy it?”
Andrew Apfelberg, a partner at Greenberg Glusker who specializes in mergers and acquisitions, told TheWrap that while he certainly expects Verizon to make some changes to the deal — he suggested holding back some of the proceeds to be released at a later date — he believes Verizon’s ultimate posture will depend on why, exactly, they bought Yahoo. He did say he was surprised the hack didn’t come up in the due diligence process.
If it was mostly about the search engine or content, Apfelberg said the breach wouldn’t have been as big a deal as it would be if Verizon was mainly interested in Yahoo’s email users.
“Depending on what their buying proposition is will determine the extent of the impact,” Apfelberg said. “If they weren’t planning on email users being a big part of the business — OK, maybe we restructure. But if that was their core buying proposition, then you’re probably looking more along the lines of a significant valuation adjustment.”
“If customers completely lost their faith in the security of it and stopped using the email, the asset’s not worth as much,” he continued.
But assuming Yahoo’s email was not the main reason Verizon bought the company, Apfelberg said the hack could be thought of as a contingent liability — a potential liability that may or may not occur depending on a future event, and whose cost can be realistically estimated. In that case, there are likely to be small pricing or deal structure adjustments — but nobody would be blowing up the deal.
“In some respects, it’s a contingent liability,” Apfelberg said. “It just happens to be really freaking big.”
Apfelberg called the hack “a major PR issue” for Yahoo that is certain to result “in a bunch of pissed off customers.” Sophisticated buyers like Verizon often see themselves as part of the solution, Apfelberg noted, so Yahoo’s embattled email business could just be another thing Verizon could add value to.
“Waiting two years — that’s what gets me pissed,” Apfelberg said, mentioning that he changed one of his Yahoo passwords just that morning. “But remember, buyers are often overconfident in their ability to fix problems.”
Golden Parachutes: See How Much These 10 Execs Got Paid to Leave (Photos)
Philippe Dauman, Marissa Mayer and Michael Ovitz are among a handful of entertainment and tech executives who were handed handsome sums of money while they were being forced out the door. (Please note: All totals are from SEC filings and other official sources.)
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Name: Philippe Dauman Company: Viacom Payday: $72 million Sumner Redstone's former protege -- and for years, one of America's highest-paid CEOs -- took home $72 million as part of a settlement that will see him depart the embattled media company in September.
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Name: Roger Ailes Company: Fox News Payday: $40 million Ailes left the news network he essentially built after a lawsuit filed by a former Fox News anchorwoman led to an investigation, and several other women coming forward accusing Ailes of sexual assault. Ailes resigned two weeks after the lawsuit was filed and received $40 million.
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Name: Michael Ovitz Company: The Walt Disney Company Payday: $140 million Not a CEO, the co-founder of Creative Artists Agency made $140 million in less than a year's work as the executive president of Disney, when he was fired by then-CEO Michael Eisner, triggering a severance package that was built into his deal -- and which Disney shareholders unsuccessfully tried to have returned in court.
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Name: Carly Fiorina Company: Hewlett-Packard Payday: $21 million The former Republican presidential candidate -- and Ted Cruz's presumptive running mate -- pocketed $21 million when she was forced to resign after orchestrating a disastrous acquisition of Compaq.
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Name: Marissa Mayer Company: Yahoo Payday: $55 million Mayer hasn't yet committed to leaving, but she's widely expected to depart the top job after Yahoo agreed to be purchased by Verizon for $4.8 billion. Mayer is guaranteed $55 million in severance if she loses her job or if there is a change in control.
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Name: Henrique de Castro Company: Yahoo Payday: $58 billion It turns out there is actually a good time to get fired: Mayer canned de Castro, Yahoo's chief operating officer, in 2014, but his heavily stock-based severance package was worth a robust $58 million, as Yahoo's stock had swelled at the time due to its ownership interest in Chinese e-commerce giant Alibaba.
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Name: Tom Freston Company: Viacom Payday: $85 million Freston, Dauman's precedessor and the man who essentially built MTV, was fired by Redstone in 2006. One of the biggest reasons: his failure to buy MySpace, which News Corp. eventually sold in 2011 for a $545 million loss.
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Name: Rob Marcus Company: Time Warner Cable Payday: $93 million Time Warner Cable was acquired by Charter Communications earlier this year, making his CEO job redundant. Marcus walked away with nearly $100 million after two-and-a-half years of work.
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Name: Jack Welch Company: General Electric Payday: $417 million GE's pugnacious boss scored the granddaddy of all severance packages, walking away with a monster deal that only became public during a divorce settlement that mandated the disclosure of his retirement benefits.
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Name: Amy Pascal Company: Sony Payday: Four-year production deal, valued at $40 million Pascal, whose personal emails were exposed as a result of the Sony hack landing her in hot water regarding references to President Obama -- was fired as co-chair of Sony's film division in the wake of the scandal. She got a production deal -- not uncommon for high-level studio execs -- that has her attached to some of the studio's biggest franchises, including "Spider-Man" and "Ghostbusters."
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Philippe Dauman is the second consecutive Viacom CEO to walk away with a monster severance package
Philippe Dauman, Marissa Mayer and Michael Ovitz are among a handful of entertainment and tech executives who were handed handsome sums of money while they were being forced out the door. (Please note: All totals are from SEC filings and other official sources.)