(Adds background on use of clause)
By David Shepardson
WASHINGTON Oct 13 Verizon Communications Inc
said on Thursday it has a "reasonable basis" to believe
Yahoo Inc's massive data breach of email accounts
represents a material impact that could allow Verizon to
withdraw from its $4.83 billion deal to buy the technology
Verizon's general counsel Craig Silliman told reporters at a
roundtable in Washington the data breach could trigger a clause
in the deal that would allow the U.S. wireless company not to
"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 said, declining to
comment on whether talks are under way to renegotiate the
Asked for comment, a Yahoo spokesman said: "We are confident
in Yahoo's value and we continue to work towards integration
The deal has a clause that says Verizon can withdraw 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."
Silliman said the U.S. Federal Trade Commission has approved
Verizon's planned acquisition of Yahoo, but it still needs
approval from the European Commission and the U.S. Securities
and Exchange Commission is reviewing the proxy.
Verizon has had preliminary briefings from Yahoo but it
still needs "significant information" from the company before it
makes a final decision on the materiality of the hacking of at
least 500 million email accounts, Silliman said.
He said 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."
Yahoo shares ended 1.75 percent lower at $41.62, while
Verizon was largely unchanged, closing at $50.29, down 0.02
Yahoo in September disclosed that it had fallen victim to a
data breach in 2014 that compromised users' names, email
addresses, telephone numbers, dates of birth and encrypted
The company has said the cyber attack was carried out by a
"state-sponsored" actor, but some private security experts have
challenged that assertion.
Several Democratic senators have pressed Yahoo to reveal
more information about the hack and why it took so long to
The internet firm said it learned of the breach this summer
while investigating claims of a separate intrusion, but it has
not provided a specific timeline of events.
Some analysts suggested Verizon may be trying to get a
Roger Entner, an analyst at Recon Analytics, said "Verizon
is rightfully upset about Yahoo not properly disclosing the
He said Yahoo would most likely have to consider
renegotiating the price with Verizon, if it came to that.
"I don't think it has much of a choice. Who else would want
to buy them?" Entner said.
Experts said bidders who try to extract themselves from
mergers using the material adverse clause face an uphill battle.
No U.S. company has ever invoked the clause successfully in
court to get out of a deal.
In 2013, Cooper Tire & Rubber company got cold feet about a
$2.5 billion sale to Apollo Tyres and argued in the Delaware
Court of Chancery that Apollo had seen a material adverse change
related to union issues at a subsidiary of the company. The
court rejected Cooper Tire's claims and the deal fell apart.
A Delaware court ruled in 2001 that poultry producer Tyson
Foods Inc could not terminate its merger with beef
producer IBP Inc over accounting irregularities. The court said
the shortfall was not due to a long-term problem.
(Reporting by David Shepardson, additional reporting by Dustin
Volz in Washington, Malathi Nayak in New York and Liana Baker in
San Francisco; editing by Leslie Adler, Andrew Hay and Bernard