Yahoo’s massive security breaches will be costly, but they won’t doom an acquisition by Verizon.
Verizon said today that it will spend $4.48 billion to acquire Yahoo’s core business, agreeing to a $350 million discount following two huge cyberattacks on the longtime internet company. The buyout was initially announced in July, but Verizon opted to reopen negotiations after the hacks were disclosed.
The companies also agreed to split “certain legal and regulatory liabilities” due to Yahoo’s security breaches. Yahoo will be responsible for half of any cash liabilities incurred during the closing related to non-SEC government investigations and third-party litigation related to the breaches, and liabilities from shareholder lawsuits and SEC investigations will be the sole responsibility of Yahoo.
“We have always believed this acquisition makes strategic sense,” said Marni Walden, Verizon’s executive vice president of Product Innovation and New Businesses, in a press release. “We look forward to moving ahead expeditiously so that we can welcome Yahoo’s tremendous talent and assets into our expanding portfolio in the digital advertising space.”
The deal is expected to close in the second quarter of 2017.
Like AT&T, Verizon is looking to build a digital media and advertising empire to offset slowing growth in the U.S. wireless market. In 2015 it acquired AOL for $4.4 billion, and more recently it bought the web-video startup Vessel for an undisclosed sum. Meanwhile, it continues to pursue Go90, an OTT video offering aimed at young mobile users.
The Yahoo acquisition would give Verizon 2% of the global digital advertising market in terms of revenue, according to eMarketer, far behind Google at 32% and Facebook at 13%, according to a research note from Wells Fargo Securities.
And whether the nation’s largest wireless carrier can actually gain significant traction in digital media is far from clear. Verizon recently slashed 155 jobs from Go90, which has struggled to find an audience, and its fledgling digital media business generated a mere $532 million minus traffic and acquisition costs in the fourth quarter of 2016.
“We believe the Yahoo assets combined with its AOL business should drive both expense and revenue synergies, particularly when paired with Verizon’s 114 million wireless subscribers,” Jennifer Fritzsche of Wells Fargo Securities wrote in a research note. “The combined Yahoo-AOL businesses would help diversify Verizon away from its core wireless business, although we would note its digital media and advertising business would still be a small percentage of revenues. Verizon would still be a relatively small player in the digital advertising space after the deal closes.”