What Could Happen to Yahoo if Verizon Backs Away From Its $4.8 Billion Deal

As rumors swirl about Verizon's plans for acquiring Yahoo, business analysts say the former search giant could see choppier waters ahead if Verizon backs out of the deal, as some observers have suggested it should do.

Yahoo, the troubled Internet company that once dominated the online search market, last week disclosed a massive data breach that occurred in 2013 and affected up to a billion users. The admission came just weeks after another announcement that hackers had put half a million Yahoo accounts at risk sometime in 2014. Together, they rank as the two biggest known hackings in corporate history.

Verizon expressed significant concerns over the smaller breach in October, signaling that it could jeopardize its $4.8 billion bid for Yahoo. Executives at the telecom behemoth said they were leaning toward concluding that the hack had adversely affected Yahoo's core business, making it a less attractive purchase.

The initial hack could have been written off as a one-time event, analysts say, but the bigger breach will be impossible to ignore. For Verizon, the stakes have risen. Although it has not raised fresh warning flags over the new disclosure, the telecom firm must balance Yahoo's initial estimated value against the possibility of discovering even more hackings down the road.

"It's like buying a ticking time bomb,"said Jeff Kagan, an independent industry analyst. "You never know when it's going to blow again, and could keep blowing up time after time."

Security experts have criticised Yahoo's use of outdated security technologies to defend user data, and the company's top security official resigned in protest in 2015 when he was cut out of a major decision to allow the federal government to scan customer emails.

The renewed concerns over Yahoo have caused Verizon to think seriously about abandoning the deal or asking for a discount, Bloomberg News reported Friday. Some analysts have suggested that Verizon may seek as much as a $200 million price cut.

Backing out of the deal, Kagan said, probably would cause Yahoo's value to decline. But Verizon is more likely to seek a discount than to walk away, according to a mergers and acquisitions lawyer familiar with the transaction who spoke on the condition of anonymity to discuss matters of corporate strategy.

A discount could help offset the potential legal, regulatory or reputational risks that Verizon may assume by going through with the deal, according to analysts. By just how much is unclear. "As we've said all along, we will evaluate the situation as Yahoo continues its investigation," Verizon said in a statement last week. The company declined to comment for this story.

Yahoo executives say the core business remains strong. Chief executive Marissa Mayer told investors on a recent earnings call that the company had "launched several new products and showed solid financial performance across the board." Yahoo said Tuesday in a statement that it is confident in its value and that "we continue to work towards integration with Verizon."

But should that effort collapse, the consequences for Yahoo could be dire, according to analysts who say the company has been losing staff at an alarming rate.

"Yahoo has no Plan B," said Laura Martin, an industry analyst at Needham & Co. "People have been leaving in droves," creating gaps in talent that could be difficult to fill if Verizon backed out of the transaction. The result, she said, may be a less healthy organization at a time when it most needs to show that it is fully functional.

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