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Just days after Yahoo Inc. reassured regulators and investors the company’s $4.5-billion deal with Verizon Inc. was on solid footing, new details surfaced about a major hack that has dogged the former tech giant for six months. (Michael Probst/AP)
Just days after Yahoo Inc. reassured regulators and investors the company’s $4.5-billion deal with Verizon Inc. was on solid footing, new details surfaced about a major hack that has dogged the former tech giant for six months. (Michael Probst/AP)

Yahoo reveals details of Verizon deal negotiations Add to ...

Just days after Yahoo Inc. reassured regulators and investors the company’s $4.5-billion deal with Verizon Inc. was on solid footing, new details surfaced about a major hack that has dogged the former tech giant for six months.

On Wednesday, the U.S. Department of Justice revealed charges against four men who allegedly hacked Yahoo users in 2013 and 2014. The indictment said the four alleged hackers – three Russians and a Canadian – had nearly free rein inside Yahoo’s system at the peak of the hacks. The charges opened yet another chapter in an extended drama that has complicated efforts to sell the Internet pioneer.

In July, 2016, Yahoo announced the sale of its core Web business for $4.8-billion. By September, it was dealing with the revelation that hackers had potentially breached hundreds of millions of user accounts. In October, reports surfaced that Verizon was seeking a billion-dollar discount on the deal. By December, the number of affected users had climbed closer to a billion. In February, reports said the purchase price would be cut by about $350-million (U.S.).

Read more: Canadian 22-year-old millionaire Karim Baratov charged in Yahoo hacking

Read more: Canadian Karim Baratov, Yahoo hacking suspect, boasted about his wealth

This week, the company revealed that the hit could have been much worse. In a filing on Monday with the U.S. Securities and Exchange Commission, Yahoo unveiled details of negotiations in which the company talked Verizon down from a desired price reduction of $925-million. It also said Marissa Mayer, Yahoo’s once-hailed chief executive officer, had been offered $23-million in severance to make way for a new CEO, about half the amount she was to receive before the hack.

When news of the price reduction began circulating in mid-February, some analysts expressed surprise that it was not more – and that the deal was still on at all.

“The fact they are closing the deal at any price is really good,” Laura Martin, a senior analyst with investment-service firm Needham & Company, said at the time. In the past months, Yahoo’s shares have been trending higher, closing at $46.29 on Wednesday – up more than 20 per cent since the middle of December. Some analysts predict a $52 share price for the entity, which will be renamed “Altaba” once the deal with Verizon is completed.

Still, uncertainty looms about Yahoo’s liability for continuing costs related to the hacks, which have so far totalled more than $16-million. The SEC is also investigating whether Yahoo breached its fiduciary duty to shareholders by not disclosing the hacks when they first learned of them. Altaba will retain 100 per cent of the liability for any related litigation.

Meanwhile, at least two-dozen class-action and other lawsuits are in the works from consumers, including one by Merchant Law Group LLP representing Canadian users. Part of the amended agreement stipulates Altaba and Verizon split any costs associated with consumer lawsuits that come after the deal closes.

Another area of potential liability is with Yahoo’s advertiser partners and clients, who could make a claim based on allegations that they too were defrauded. According to the Justice Department indictment: “One of the defendants [Alexsey Alexseyevich Belan, 29, also known as Magg, a Russian resident] also exploited his access to Yahoo’s network for his personal financial gain … redirecting a subset of Yahoo search engine web traffic so he could make commissions.”

In 2005, Yahoo paid $4.95-million to settle a case that alleged it did not do enough to protect against click fraud. In 2006, Google paid $90-million to settle a click-fraud case.

Finally, there is the underlying financial performance of the unit Verizon is buying. In January, Yahoo’s 2016 revenue was reported at $5.17-billion (a slight improvement after falling from $6-billion in 2010 to less than $5-billion when Ms. Mayer took over in 2012), of which $1.4-billion was for mobile ad sales, and $3.4-billion from desktop. The combined Web business has about a billion global monthly users, but represents only about 1.3 per cent of the mobile ad market, according to eMarketer. Still, ad sales volume increased 4 per cent, and cost-per-click of search ads was up 18 per cent.

It is a much leaner operation than the one Ms. Mayer took over: In 2016 alone, 18 per cent of Yahoo’s work force was cut, leaving 8,500 people, down from 11,700 in 2012.

By comparison, Verizon brought in $126-billion in revenue in 2016 and has more than 160,000 employees.

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