What’s in a name? Quite a lot, actually — especially if you’re Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Meyer and trying to close a $4.8 billion merger with Verizon Communications Inc. (NYSE:VZ).
Last week, Yahoo confirmed the largest-ever security hack of 500 million Yahoo user names and passwords. Verizon stock holders were left scratching their heads, wondering whether VZ would follow through with its buyout.
In the wake of the hack, Sen. Mark Warner (D-Va.) wrote the Securities and Exchange Commission requesting a hearing.
“The public ought to know what senior executives at Yahoo knew of the breach and when they knew it,” he said. “Yahoo’s September filing asserting lack of knowledge of security incidents involving its IT Systems creates serious concerns about truthfulness.”
The massive hack happened two years ago, which goes well beyond the typical 205-day lag between breach and detection, according to the latest M-Trends report from FireEye. The apparent lack of proper control, and potential unwillingness to share the news or even hide it, casts YHOO in a particularly bad light.
Tim Armstrong, CEO of Verizon subsidiary AOL, told CNBC on Monday morning that it’s too early to comment on whether Verizon might try to renegotiate terms of the pending acquisition. By the same token, VZ has a fiduciary responsibility to its own shareholders, and $4.8 billion is a lot to spend with so many unanswered questions.
So should Verizon still move forward to complete the deal?
Yes, Verizon Should Still Buy Yahoo
Assuming the breach results in only minimal Yahoo customer loss, Verizon’s current $4.8 billion cash purchase will be accretive to earnings by 13 cents, or 3.1%, according to Bloomberg Intelligence. Yahoo’s assets will also boost Verizon’s share of the global ad market ex-China to 2.9%. In the U.S., share will rise to 5.2%, elevating Verizon to No. 3 domestically behind Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB), according to eMarketer.
Looking at the metrics of the transaction as it stands, Verizon is already getting a good deal. Its $4.8 billion purchase price values Yahoo at 13.7 times 2017 sales, which equates to a 5.8% discount to the 1.45 multiple of 2016 sales paid by Verizon to acquire AOL in 2015.
Verizon might be able to negotiate a slight discount, but Yahoo’s core Finance, Sports and Weather franchises are too strong to ignore.
Listen. If Anthem, Home Depot and Target can all survive hacks … so can Yahoo and Verizon.
Here’s how everyone saves face and gets this deal done:
- Marissa Mayer offers to go in front of Congress and testify so “Everyone can learn from our experience and strengthen U.S. companies against foreign governments trying to do harm.”
- Verizon hires independent accountants to quantify the costs of the hack and amend the purchase price by a nominal $100 to $200 million.
- VZ reiterates the buy case for shareholders and security protocols for users. Above all, Mr. Armstrong and Ms. Meyer must appear confident in one another and their respective businesses.
Bottom line? The Yahoo hack was unfortunate. Verizon needs to get over it and get going. Facebook and Google are out there.
