Yahoo Breach Update and the Verizon Merger

Right after Yahoo announced all of the different breaches, the expectation was that Verizon merger offer would be modified or totally go away.

Well, there is some news and it is probably not as bad as it could be. Many people were suggesting that the price would go down by a billion dollars and that Verizon would ask for a hold back of another billion dollars.

Luckily for Yahoo shareholders, it is not quite that bad.

Verizon negotiated a number of changes.  The first change is that the purchase price is reduced by $350 million.  Ignoring all other costs, and there are a lot of them, that means that this breach will cost Yahoo shareholders at least $350 million pre-tax.

Next, Yahoo and Verizon will split the cost, 50/50 of many of the expenses associated with the breach such as some government investigations and third party litigation related to the breach.

However, Yahoo will be completely liable for all expenses related to the SEC investigation and of shareholder lawsuits.

Put all that together and that is likely to cost Yahoo shareholders a half billion dollars or more.  Some of that is likely deductible from their taxes, so that will reduce the after tax cost of that, but still, it will be a significant number.

Depending on what the SEC does, that could be a significant cost – or not.

Shareholder lawsuits are much more dicey.  Most of the time, shareholder lawsuits, of which a number have been filed, fail.  This one COULD be different since apparently Yahoo was aware for over a year about the breaches and didn’t tell shareholders.  That would seem to be a problem.

For example, the shareholder lawsuit against Home Depot was dismissed and The Target shareholder lawsuit was withdrawn, but not until Target spent a lot of money dealing with it.

Bottom line here is that this is an example of a real world cost of a breach.  The good news for Yahoo may be that Verizon didn’t walk away from the deal completely as it would be unlikely that they could get another $4+ billion offer.

I am sure that it will be years before all the dust from the lawsuits and government reviews settles and until then, both Verizon and Altaba (which is what the part of Yahoo that did NOT get sold will be called) will have to spend precious time and money dealing with it.  Both companies will have to reserve no doubt many tens of millions of dollars to pay for these costs.

All of this might have been avoided if Yahoo spent more money on security rather than a pretty user interface.

Information for this post came from CNBC and JD Supra.

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