Verizon is threatening to invoke the “material adverse clause” and to walk away from its offer to buy Yahoo in light of Yahoo’s 2014 hacking scandal. Experts say that no U.S. company has successfully used the clause to extract itself from an agreement. Will Verizon succeed, or will a new price be negotiated?
Yahoo’s handling of the hacking of at least 500 million email accounts that occurred in 2014 is wrecking their chances of closing a deal with Verizon, according to the Huffington Post. Verizon and Yahoo have been in negotiations over a buy-out of Yahoo for the amount of $4.83 billion. On Thursday [October 13], Reuters reported that Verizon considers it has a “reasonable basis” on which to rescind its offer to buy Yahoo. Verizon is claiming that Yahoo’s data breach has a “material impact” that allows Verizon to withdraw from the deal.
Yahoo’s data breach occurred in 2014, but the company only disclosed it in September of 2016. Yahoo has been asked by some Democratic senators to explain why it took so long to discover and report the data breach. Yahoo claims that it only learned of the breach this summer when it was investigating another potential attack.
Craig Silliman, Verizon’s general counsel Craig Silliman told reporters at a roundtable in Washington, “I think we have a reasonable basis to believe right now that the impact is material and we’re looking to Yahoo to demonstrate to us the full impact. If they believe that it’s not then they’ll need to show us that.”
Silliman would not say whether the two companies are renegotiating the purchase price, but a spokesperson for Yahoo said: “We are confident in Yahoo’s value and we continue to work towards integration with Verizon.”
According to a clause in the deal, Verizon can withdraw if an event “reasonably can be expected to have a material adverse effect on the business, assets, properties, results of operation or financial condition of the business.” Verizon wants additional information from Yahoo before making a decision.
According to Silliman, the deal has been approved by the U.S. Federal Trade Commission but not yet by the European Commission and the U.S. Securities and Exchange Commission, which is still reviewing the proxy. Yahoo shares dropped 1.75 percent lower to $41.62 on Thursday, while Verizon closed at $50.29, down 0.02 percent.
The most likely scenario is a renegotiation of the price. According to experts, it is not easy for bidders like Verizon to walk away from a deal using the material adverse clause, and no U.S. company has been successful in doing so.
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