Verizon Communications (VZ) lawyers "had their first call" with Yahoo (YHOO) counterparts on Wednesday to hash out the details of a massive email breach that Yahoo disclosed on Sept. 22, Verizon's chief financial officer said on the company's Q3 earnings conference call early Thursday.
Verizon has indicated that Yahoo's disclosure of a data breach of about 500 million accounts could be grounds for renegotiating its acquisition of the internet company. Verizon agreed to buy Yahoo for nearly $6 billion in July, including $1.1 billion in employee stock compensation. Verizon reportedly might aim to shave $1 billion off the purchase price.
The deal is subject to a $145 million breakup fee payable by Yahoo.
IBD'S TAKE: Yahoo stock has been bolstered by its 15% stake in Alibaba Group, valued at $40.6 billion as of Sept. 30. Yahoo stock may not take a big hit even if it renegotiates the Verizon deal, some analysts say. Check out Yahoo's chart since the Verizon deal was announced in July at IBD Stock Checkup.
Craig Silliman, Verizon's general counsel, on Oct. 13 signaled that from Verizon's view, the burden of proof is on Yahoo to demonstrate that the email breach is not material to the deal.
"We are still evaluating what it (the breach) means for this transaction," said Verizon CFO Fran Shammo on its Q3 earnings call. "We have to assume it will have a material impact on Yahoo."
On Yahoo's own Q3 earnings conference call after the close Tuesday, its executives noted that "user engagement" at key properties has not been materially impacted by the breach.
Yahoo has not disclosed how many email accounts have been canceled, and it apparently has been tight-lipped about details involving the data breach in private discussions with Verizon. So the telecom's lawyers are getting more involved.
"(Verizon) lawyers had their first call yesterday with Yahoo to provide us with information," Shammo said. "That's going to be a long process. Unless Yahoo comes up with a different process, it's going to take some time to evaluate this. Until then, we haven't reached any final conclusions around this issue."
Yahoo has described the cyberattack as state-sponsored. Yahoo has stated there's no evidence that hackers are still lurking within its network. But Verizon may be worried about integrating its network with Yahoo's after the deal closes.
Yahoo on Tuesday reported Q3 profit that topped expectations and in-line revenue. The web portal canceled its conference call to discuss earnings in the wake of its pending acquisition by Verizon.
Yahoo stock dropped 0.8% to 42.38 by the closing bell on the stock market today ,while shares in Verizon lost 2.5% to 49.14 as Q3 results disappointed.
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