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Yahoo Breach May Trigger 'Material Adverse Change' Clause

The Yahoo data breach, which compromised 500 million user accounts, may cause Verizon to renegotiate its $4.8 billion acquisition deal.

Dark Reading Staff

October 14, 2016

1 Min Read

Verizon Communications may have leverage to renegotiate its $4.8 billion Yahoo acquisition under a rarely used "material adverse change" clause, the Wall Street Journal reported today.

Mergers often have clauses allowing buyers to leave agreements if a development is reasonably expected to "have a material adverse effect" on the business, assets, properties, operations, or finances of an organization.

Since Verizon and Yahoo agreed to merge in July 2016, the latter disclosed a data breach that compromised 500 million user accounts. The breach reportedly occurred two years ago, but was discovered after the two companies signed an agreement.

In its Verizon deal, Yahoo confirmed no security breaches had happened or would take place by the time the transaction was complete, said Stephen S. Wu, lawyer at the Silicon Valley Law Group, to the WSJ. Now, Verizon's general counsel says it has reason to believe this breach will have a material impact.

Now, Verizon has power to possibly renegotiate its deal or abandon it, says Wu. Material adverse change clauses are rarely used by companies because courts resist them. It takes a substantial development to trigger this step.

Read more at the Wall Street Journal.  

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Dark Reading Staff

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