After data breaches, Verizon knocks $350M off Yahoo sale, now valued at $4.48B

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After the disclosure of two massive data breaches last year, today Yahoo and Verizon finally confirmed new terms for the sale of Yahoo to Verizon: Verizon will pay $350 million less than originally planned, working out to a price of $4.48 billion to acquire Yahoo.

The two have also agreed to share legal and regulatory liabilities after two massive data breaches at Yahoo, one estimated to cover around 500 million accounts revealed in September 2016, and another disclosed in December 2016 affecting over 1 billion accounts. TechCrunch has also confirmed that any further Yahoo liability going forward will be assumed by Altaba, the newly branded holding company that will oversee the Yahoo stake in Alibaba after the sale of the rest of the assets to Verizon.

The deal is now expected to close in Q2 2017, the two companies said. Verizon also owns AOL, which owns TechCrunch.

“We have always believed this acquisition makes strategic sense. We look forward to moving ahead expeditiously so that we can quickly welcome Yahoo’s tremendous talent and assets into our expanding portfolio in the digital advertising space,” said Marni Walden, Verizon’s executive vice president and president of new business, said in a statement. “The amended terms of the agreement provide a fair and favorable outcome for shareholders. It provides protections for both sides and delivers a clear path to close the transaction in the second quarter.”

Marissa Mayer, Yahoo’s CEO, also noted that this will help move the deal along, after it was first announced in July of last year.

We continue to be very excited to join forces with Verizon and AOL,” she said in a statement. “This transaction will accelerate Yahoo’s operating business especially on mobile, while effectively separating our Asian asset equity stakes. It is an important step to unlock shareholder value for Yahoo, and we can now move forward with confidence and certainty. We have a terrific, loyal, experienced team at Yahoo. I’m incredibly proud of our team’s strong product and financial execution in 2016, setting the stage for a successful integration.”

More details: Yahoo agreed to be “responsible for 50 percent of any cash liabilities incurred following the closing related to non-SEC (Securities and Exchange Commission) government investigations and third-party litigation related to the breaches. Liabilities arising from shareholder lawsuits and SEC investigations will continue to be the responsibility of Yahoo.”

Given that Verizon is acquiring Yahoo, it’s not spelled out how Yahoo will account for this liability. We have confirmed that any further liability will come out of Altaba, the new brand of the remaining part of Yahoo that represents its shareholding in Alibaba, which is not being acquired by Verizon.

On top of this, the two have agreed to except the hacking from the terms of “business material adverse effects” that might affect the deal now closing. Specifically, Verizon itself will also refrain from making any further attempts to reduce the price of the deal because of these hacks.

Yahoo’s business, which includes its legacy search business, a number of content sites such as its finance and news portals, an email service and a number of mobile apps, was once an industry leader, but in more recent years has fallen behind the likes of Google and others in the internet race.

Verizon is buying the business — which has some 1 billion users, including 600 million mobile users — in part to expand its own ambitions to build out a wider internet-based business to sell advertising (combining Yahoo’s operations with its AOL business) and other services over its network. The wider strategy is to offset stagnation and declines in its own legacy business providing basic phone services.

“Adding Yahoo to Verizon and AOL will create one of the largest portfolios of owned and partnered global brands, with extensive technology-powered distribution capabilities. It will enhance Verizon’s growth strategy of providing a cross-screen connection for consumers, creators and advertisers,” the company claimed today.

Since the disclosure of the data breaches — some of the biggest in the history of the internet — many had been wondering if Verizon would simply cancel the Yahoo deal, which got delayed in the process. In the end, it decided that the long term benefits of picking up the Yahoo business, diminished as it has been over the years, would be more beneficial than dropping it altogether.

On top of the question of how these hacks would affect Yahoo’s user numbers and brand, there was the question of how many lawsuits might be filed by consumers, on top of any other investigations from regulators. The headache is already there and threatening to become a full-blown migraine: the SEC is already investigating and there are already class action lawsuits being filed.

The answer to why Verizon has remained interested can be found in the numbers. Although Verizon today is a $126 billion business (2016 revenues), it has only 114.2 million retail connections. “Only” in the sense that this is, at the end of the day, only about 10 percent of Yahoo’s audience. In the online advertising game of scale, where Verizon is competing against the likes of Facebook and Google, you can see the value of picking up a wider audience, as well as content to serve to all of your audience, for a relatively small fee.

The catch, of course, is that while Verizon is zigging, you have a whole new business model that is zagging: Snap Inc is banking on smaller but way more engaged audiences as a route to riches. It will be interesting to see which model, the old or new, wins out.