On July 25, 2016, Verizon Communications announced that it had reached an agreement to purchase Yahoo’s core internet business for a whopping $4.83 billion. However, this acquisition was not without controversy as the deal was mired by several issues such as data breaches, user privacy concerns, and legal liabilities.
The acquisition included Yahoo`s advertising tech, email service, search engine, and various media properties including Yahoo Finance, Yahoo Sports, and Yahoo News. The deal also brought AOL under Verizon`s umbrella, which the company had acquired a year earlier, and the combined entity was renamed Oath.
Yahoo’s data breach scandal
In 2013 and 2014, Yahoo suffered a massive cyberattack which affected over 3 billion user accounts. This made it the biggest data breach ever recorded in history. The attack compromised users` personal information, including names, email addresses, dates of birth, and security questions and answers.
The attack was not disclosed by Yahoo until 2016, by which time the company was already negotiating the sale to Verizon. As a result, the deal`s value was renegotiated, resulting in a $350 million cut in the purchase price.
User privacy concerns
The data breach scandal raised several concerns about user privacy, particularly as some affected users had not used Yahoo services for years. Furthermore, it was also discovered that Yahoo had scanned all its users` incoming emails for specific keywords on behalf of US intelligence agencies.
Legal liabilities
In a class-action lawsuit, Yahoo agreed to pay $117.5 million to settle claims related to the data breaches. Verizon was also required to assume some legal liabilities from Yahoo as part of the acquisition negotiations.
Impact on Oath
Despite the challenges, Verizon went ahead with the acquisition and merged Yahoo and AOL to form Oath in 2017. The new entity was aimed at challenging Google and Facebook`s dominance in the digital advertising market.
However, the merger did not go as planned, and Verizon wrote down the value of Oath by $4.6 billion in 2018, just two years after its formation. The move was seen as an acknowledgment of the failure of the merger to compete effectively in the digital advertising industry.
Conclusion
Verizon`s acquisition of Yahoo`s core internet business was a significant development in the digital advertising industry. However, the acquisition was mired by data breaches, user privacy concerns, and legal liabilities, resulting in the deal`s renegotiation. The merger of Yahoo and AOL to form Oath was also unsuccessful, with the entity`s value being written down by $4.6 billion just two years after formation. The aftermath of the deal further highlights the importance of due diligence in mergers and acquisitions and the need for companies to prioritize user privacy.