Verizon says Yahoo data breach had 'material' impact and could affect $4.83bn deal

Verizon has signalled that Yahoo's recently disclosed massive 2014 data breach that affected more than half a billion user accounts could impact the proposed $4.83bn (£3.95bn) deal to acquire the internet giant. Dubbed one of the largest cyberattacks in history, the breach occurred in late 2014 and compromised sensitive user data such as names, email addresses, phone numbers, dates of birth and encrypted passwords of "at least" 500 million user accounts.

Many investors and experts expressed concerns about the impact of the recently revealed data breach on the ongoing takeover deal.

Verizon general counsel Craig Silliman told reporters in Washington DC on Thursday (13 October) that the hack could possibly affect the deal.

"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," Silliman said, Reuters reports. "If they believe that it's not then they'll need to show us that."

The company declined to provide further comment on whether there are ongoing talks about renegotiating the price or specify details regarding the impact on the deal.

"We are confident in Yahoo's value and we continue to work towards integration with Verizon," Yahoo said in a statement.

Reuters reports that there is a clause in the deal that states Verizon can choose to back out if a new 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."

While the US Federal Trade Commission has approved Verizon's proposed takeover agreement with Yahoo, approval from the European Commission is still pending. US Securities and Exchange Commission is still reviewing the proxy as well, Silliman said.

He added that Verizon has had preliminary briefings from Yahoo but still requires "significant information" from the internet company before it makes its final decision on the materiality of the data breach.

Verizon is "absolutely evaluating [the breach] and will make determinations about whether and how to move forward with the deal based on our evaluation of the materiality," he said.

In September, Yahoo said the cyberattack was orchestrated by a "state-sponsored hacker." However, many experts have been sceptical about the company's claim.

Yahoo claimed it was not aware of the cyberattack when the deal with Verizon was signed in July this year. Verizon, on the other hand, said they did not find out about the hack until the week it was disclosed to the public, noting that it had "very limited information and understanding" about the incident and its impact.

Former chief executive of Yahoo Ross Levinsohn said earlier this month that it was "likely" that Yahoo knew about the unprecedented breach before the deal was signed with Verizon in July.

Following a NY Post report that Verizon could be seeking a $1bn discount on its pending takeover agreement with Yahoo, CEO Lowell McAdam dismissed the idea earlier this week, calling the report "total speculation." However, he did add that they are still "understanding what was going on and defining whether it was a material impact on the business or not."

Roger Entner, an analyst at Recon Analytics told Reuters that Verizon is "rightfully upset about Yahoo not properly disclosing the breach," adding that the company may end up having to renegotiate the price with Verizon.

"I don't think it has much of a choice," Entner said. "Who else would want to buy them?"