Back in the day, Yahoo used to be one of the tech giants. Most people still know the brand name today, but they are getting weaker and weaker each passing year. In fact, with dwindling profits, the company has been on the market for some time now. Finally, Yahoo Inc. got a buyer, and it's Verizon.
Verizon announced that they are willing to purchase the core business of Yahoo for $4.4 billion. However, Verizon made a recent statement that they are slashing $350 million from the original price. The reason? It's all related to Yahoo's massive cyber attack a few years back which resulted in two major data breaches.
Yahoo reported in December that the accounts of more than 1 billion users were compromised during the August 2013 cyber attack. It was the biggest security breach in history. Yahoo also disclosed that during the 2014 breach, at least 500 million user accounts were compromised. The closing of the deal was announced last July. However, it was delayed as both companies needed time to re-adjust the final price in accordance to Yahoo's cyber attacks.
The new price is part of the revised deal. With the new deal, Verizon and Yahoo will share some of the liabilities that resulted from the cyber attacks. When it comes to cash liabilities related to third-party litigations and government investigations, Verizon and Yahoo will split the costs. However, when it comes to liabilities from SEC investigations and shareholder lawsuits, Yahoo will be solely responsible.
Verizon can expect more than 1 billion users (from Yahoo) which they can use for advertising. On top of that, Verizon has plans of combining Yahoo's advertising technology, messenger, email, and search assets to Verizon's AOL unit, which was purchased in 2015 for $4.4 billion. Verizon and AT&T are the two major players in the wireless service arena. The truth is, the industry is becoming more and more saturated. The two companies are now looking for other ways of growing.
Recently, AT&T proposed to take over Time Warner for a price of $85.4 billion. AT&T sees it as an excellent opportunity to boost their offerings to their subscribers. Time Warner is the parent company of Warner Bros. film studio, CNN, and HBO. It seems that Verizon doesn't want to be left in the dust, so the company went for Yahoo's core business.
According to Jennifer Fritzsche, a Wells Fargo analyst, the AOL and Yahoo combination can help in diversifying Verizon's core business. On the other hand, the advertising business and digital media are still minute percentages to Verizon's overall revenue.
Some investors are already positioning themselves for the Verizon and Yahoo acquisition. By Tuesday morning, Yahoo's shares went up by .30%, and Verizon's shares increased by .50%. The two companies expect to close the deal by the second quarter of 2017. In our opinion, Yahoo got lucky with the slashed price of $350 million. This is considering the fact that Yahoo's revenue is dwindling and there's nothing in the R&D department that can propel them back to their old status.