The Clock Ticks Down to the Yahoo! Inc. (YHOO) Acquisition

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I’m increasingly confident that Yahoo! Inc.’s (NASDAQ:YHOO) acquisition by Verizon Communications Inc. (NYSE:VZ) is going to close only a little behind schedule.

Clock Ticks Down to the Yahoo! Inc. (YHOO) Acquisition

Yes, the online superpower is facing an SEC investigation into why management waited years to let the world know their billion-user database had been hacked. But those managers and the compliance systems the regulators want to test are unlikely to stick around once VZ stock takes its prize.

Troubles for YHOO Stock?

The SEC investigation doesn’t seem like it will become the kind of juicy probe into fraud that can bring a company to its knees. All the regulators really want to know is whether the timing of the hack announcement left outside investors at a disadvantage.

Based on price action since we all found out that YHOO security was compromised several years ago, I’d say the gun just isn’t smoking. Management confessed that the database had been accessed back in September, when the stock was trading at a comfortable $44.15. Today, shares are priced around $45, so any investor harm here is minimal at best.

What we’re left with is a deal timeline that is pushed back only a few months. Given the complexity of YHOO stock’s media architecture, a merger like this takes time to do right, so I’m actually pleased to see a few delays.

And they’re almost certain to be just delays and not any kind of hard stop. This deal made sense before the investigation, and it still makes sense now.

YHOO’s business may have flattened out, but Verizon isn’t interested in building a business organically from the ground up. They’re already running a $200 billion juggernaut that has stopped growing on its own. Bolting YHOO onto that chassis could help earn VZ stock 4%-5% of top-line growth in the first year after the deal closes. That’s enough to keep shareholders happy in the near term.

From there, it’s a matter of strategic execution.

VZ stock has ambitious media plans, and I think the ongoing presence of the Huffington Post proves that the company is dedicated to building an empire of online content. Granted, YHOO itself hasn’t been growing that fast lately — revenue stalled last quarter — but that’s what happens when managers brace for a transition — plans get mothballed, ideas get filed away, and the innovation cycle pauses.

Whether it gets back to work down the road is up to the new managers. In the meantime, it’s likely that the processes which facilitated the security breach at Yahoo will go away as the acquisition unfolds.

Verizon has its own account security, and moments like this are a traditional opportunity to let IT managers on both sides take the best overall solution for the larger enterprise and let the weaker systems go.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.


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