Not that the legacy of Yahoo! Inc. (NASDAQ:YHOO) CEO Marissa Mayer was ever going be seen in a positive light, but any lingering chance it wouldn’t be remembered as an outright debacle was just wiped away. Verizon Communications Inc. (NYSE:VZ), which agreed in July to acquire Yahoo’s web properties for $4.8 billion in cash, is now seeking to reduce its cost for the company by a billion dollars.
The prompt for the request? The fact that Yahoo didn’t disclose a massive security breach that occurred in 2014, nor did it disclose it was secretly reading some incoming user emails at the request of U.S. law enforcement agencies, potentially creating a major privacy-rights battle.
For better or worse, Yahoo stock didn’t pull back much on the news. That’s because the vast majority of the value packed into YHOO shares reflects the underlying value of its Alibaba Group Holding Ltd (NYSE:BABA) holdings.
VZ shares didn’t budge following the reports, as the difference between $3.8 billion and $4.8 billion isn’t significant enough to really sweat, and it’s unlikely to quell the acquisition.
Still, the fact that Verizon was given a good reason to ask for a better price midway through the merger process puts the finishing touches on Mayer’s disappointing tenure as top dog of a publicly traded company.
Other Land Mines for the YHOO CEO?
The New York Post broke the story on Thursday evening, pointing out that Verizon-property AOL’s chief Tim Armstrong had recently paid a visit to Yahoo to make the reduced-price request. Yahoo isn’t rolling over though. In an effort to defend the value of Yahoo stock (to the extent it can any longer, anyway), Yahoo is pushing back, insisting Verizon stick to its original offer of $4.8 billion.
Verizon has shareholders and a corporation to protect as well, however. In light of the new revelations about security failures, failing to disclose relevant information and the distrust it may have cultivated by spying on its e-mail users, Verizon is considering setting aside $1 billion to deal with any fallout the recent gaffes may create.
Though the cited reason for renewed price negotiations are the security and privacy issues, Verizon’s balk may have as much to do with the fact that more such land mines are lurking. YHOO didn’t volunteer either of the aforementioned problems when it was sharing information with bidders so they could make informed decisions. It’s plausible there are more headaches that will only come to light only after the deal is officially completed.
Another Marissa Mayer Misstep
The obvious follow-up question: Why didn’t Yahoo tell its suitors about the security breach, which was bound to present problems sooner or later?
For that matter, why didn’t Yahoo warn customers of the breach in 2014, when it first happened?
The compliance with the Foreign Intelligence Surveillance Court’s request to scan incoming e-mails is slightly (though only slightly) more forgivable, as it was part of a war against terrorism. Even then though, it’s not clear to what extent — if any — Yahoo resisted, nor is it unlikely Mayer has resisted other similar requests of law enforcement agencies that cross legitimate user-privacy lines.
It’s just another set of bad decisions from Marissa Mayer, and the list was pretty long to begin with.
Also included on that list is Yahoo’s ill-advised push into online video. While there’s no way to deny traditional television is fading at the expense of internet-delivered video, Yahoo never had the right tools in place to truly compete with the likes of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) venue YouTube or Netflix, Inc. (NASDAQ:NFLX).
Mayer also managed to force a huge number of the company’s most important leaders out the door.
Perhaps the most glaring failure until the undisclosed e-mail hack in 2014 was discovered, though, was the decision to spend $1.1 billion on Tumblr in 2013. Mayer made a point of vowing to Yahoo stock owners that it wouldn’t ‘screw it up.’ But, earlier this year, Yahoo took a write-down of $482 million on Tumblr, as it never became the powerhouse property it was supposed to become.
Now the list of mistakes is a couple of entries longer.
Bottom Line for Yahoo Stock
As was noted, the vast majority of the price of Yahoo stock reflects the value of its Alibaba holding, and $1 billion less from Verizon for the company’s web business won’t alter the value of the biggest piece of Yahoo’s total enterprise. It also wouldn’t matter to Verizon. Indeed, there have been times of late when the non-Alibaba portion of Yahoo’s enterprise technically had a negative value. The offer was always an arbitrary amount; a price of $5.8 billion would have been just as palatable as $4.8 billion.
Point being, Verizon’s request is likely more for show than based on a recalculation of Yahoo’s value in light of recent events.
Still, there is a threat to YHOO stock — if Yahoo doesn’t agree to Verizon’s new terms and Verizon walks away from the deal altogether, Yahoo itself is back to square one. That’s the last place it needs to be. The company’s already proven it doesn’t know how to fix itself, and if nothing else the company just needs an “out.”
Either way, deal or no deal, this latest debacle seals the deal on Mayer’s ugly legacy.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
