Is Verizon set for a data breach discount from Yahoo?

In this digital age, cyber security is a growing global issue, and a costly one at that. No one perhaps knows this better than Yahoo, who this week admitted that it had been victim to a second giant data breach following the recently disclosed 2014 attack that had already damaged the tech giant’s reputation.

While the first cyber-attack, which targeted the email accounts of 500m Yahoo users, took two years to come to light, the second attack occurred even further back in 2013 and compromised an astounding 1.5bn Yahoo users – the biggest data breach in history.

Although this would be a catastrophic time for any business, already causing Yahoo’s stock to tumble six per cent, the revelation of a second breach is particularly bad news for Verizon, who is set to purchase Yahoo’s core operating business for $4.8bn. If one data breach wasn’t sheer bad luck for the Yahoo-Verizon deal, a second is almost unbelievable. Since the report of the first data breach, deal analysts have questioned whether Yahoo’s security lapses may scare off Verizon, and with good reason.

In the aftermath of the first revelation, Verizon’s general counsel Craig Silliman said it was “reasonable” for Verizon to interpret the impact of the data breach as “material” in regards to legal semantics which allows Verizon to withdraw its acquisition should an event occur which “reasonably can be expected to have a material adverse effect on the business, assets, properties, results of operation or financial condition of the business.” At the time, Verizon itself admitted that Yahoo’s lack of transparency could jeopardise the deal or warrant a hefty discount, with rumours suggesting that the telecoms company was seeking a $1bn price reduction.

Considering Yahoo’s latest security faux pas, it is likely that Verizon will be seeking a further reduction or it may yet decide to scrap the deal completely due to the “material adverse effect” of both data breaches. Verizon’s statement to the Wall Street Journal in response to the news that “all options were on the table” further suggests that it may seek collateral damage from Yahoo for the damaging breaches. However, as Yahoo were reluctant to concede the $1bn requested by Verizon following the first breach, it is unlikely that it will be willing to agree to an even larger price reduction.

The future remains uncertain for Yahoo, and while it is concerning that these attacks lay undetected for years, the company’s unfortunate situation should serve as a cautionary tale to other businesses. In the case of Yahoo, the security breaches will result in significant financial losses and further reinforces the need for thorough due diligence within deal making.

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