Verizon "Still Evaluating" What Yahoo Hack Means for $4.83B Deal, CFO Says

Verizon chairman and CEO Lowell McAdam - Getty H 2016
Courtesy of Getty Images

The telecom giant's lawyers had a first call with the internet firm on Wednesday in what could be a long process, says CFO Fran Shammo.

Telecom giant Verizon on Thursday said it added 36,000 net pay TV subscribers for its FiOS video service in the third quarter, compared with 45,000 in the year-ago period.

The company in its earnings report also mentioned its July agreement for the $4.83 billion acquisition of Yahoo's core internet business. And on the conference call, CFO Fran Shammo spoke about a recently disclosed hack of at least 500 million Yahoo email accounts.

Shammo reiterated past comments from other Verizon executives and expanded on them. "We are still evaluating what it means for this transaction," he said. "This was an extremely large breach that has received a lot of attention from a lot of different people, so we have to assume that it will have a material impact on Yahoo."

He added: "Lawyers had their first call yesterday with Yahoo to provide us information. … That’s going to be a long process. So unless Yahoo comes up with a different process, it is going to take some time to evaluate this. So, until then, we haven’t reached any final conclusions around this issue.”

In a recent commentary on the issue, Verizon's general counsel Craig Silliman had similarly said: "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. If they believe that it's not, then they'll need to show us that."

He also said that Verizon had been preliminarily briefed on the incident by Yahoo, but expects more "significant information" before being able to say how material the effect would be. Silliman concluded that Verizon "will make determinations about whether and how to move forward with the deal based on our evaluation of the materiality."

Some observers took that as a sign that Verizon could decide to look to get out of the deal or get a better price. The Yahoo acquisition agreement includes a clause allowing Verizon to withdraw in the case of an event that "reasonably can be expected to have a material adverse effect on the business, assets, properties, results of operation or financial condition of the business."

After previously buying AOL and Millennial Media and last year launching millennials-focused mobile video service Go90, the company had unveiled its agreement to take over Yahoo.

Chairman and CEO Lowell McAdam previously told analysts that there would be “meaningful” financial synergies in the Yahoo deal, but the company so far hasn't detailed any figures.

Shammo on Thursday said that the company has been seeing strong demand from advertisers for its digital content offers, adding that Yahoo would further expand the company's scale.

Asked if more acquisitions in digital are needed, he said that Verizon was "well positioned” and had the "right set of assets."

Verizon's earnings report Thursday showed its return to video subscriber growth after its first-ever quarterly FiOS video subscriber loss in the previous period. The firm ended the third quarter with a total of 4.67 million subscribers to its FiOS video service, which competes with cable and satellite TV companies.

Verizon also reported that it added 90,000 net new FiOS broadband subscribers in the quarter, compared with 96,000 in the year-ago period. It ended September with a total of nearly 5.59 million broadband customers.

Verizon's quarterly earnings of 89 cents per share, or $1.01 on an adjusted basis, compared with 99 cents per share in the year-ago period.

“Verizon continues to deliver strong financial and operational results in highly competitive markets while positioning itself for future growth,” said McAdam. "While we transform our company in a challenging environment, we have maintained the financial flexibility to invest in our industry-leading networks to better serve customers, add scale to bring innovation to the mobile media and Internet of Things markets and increase dividends for a 10th consecutive year.”