Yahoo is expected to confirm massive data breach, impacting hundreds of millions of users

yahooYahoo is poised to confirm a massive data breach of its service, according to several sources close to the situation, hacking that has exposed several hundred million user accounts. While sources were unspecific about the extent of the incursion, since there is the likelihood of government investigations and legal action related to the breach, they noted that it is widespread and serious.

Earlier this summer, Yahoo said it was investigating a data breach in which hackers claimed to have access to 200 million user accounts and was selling them online. “It’s as bad as that,” said one source. “Worse, really.”

The announcement, which is expected to come this week, also possible larger implications on the $4.8 billion sale of Yahoo’s core business — which is at the core of this hack — to Verizon. The scale of the liability could be large and bring untold headaches to the new owners. Shareholders are likely to worry that it could lead to an adjustment in the price of the transaction.That deal is now moving to completion, but the companies cannot be integrated until it is approved by a number of regulatory agencies, as well as Yahoo shareholders. But representatives of Verizon and Yahoo have started meeting recently to review the Yahoo business, so that the acquisition will run smoothly once complete.

But there’s nothing smooth about this hack, said sources, which became known in August when an infamous cybercriminal named “Peace” said on a website that he was selling credentials of 200 million Yahoo users from 2012 on the dark web for just over $1,800. The data allegedly included user names, easily decrypted passwords, personal information like birth dates and other email addresses.

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The Cyber Short: Cybersecurity Implications and Considerations for M&A

Abbott Laboratories (ABT), a global manufacturer of healthcare product, announced the acquisition of St. Jude Medical (STJ) in April 2016. The $25 billion deal is now in peril after a recently-released cybersecurity report alleged that STJ’s pacemakers and defibrillators – part of a category that represents 50% of STJ’s revenues – were vulnerable to wireless cyberattack by hackers, jeopardizing the safety of thousands of device recipients.

The author of the security report, MedSec Holdings, fed their findings to Muddy Waters Research, an investment research firm that subsequently shorted STJ stock. This arrangement financially benefited Muddy Waters and Medsec when the damaging report was made public and the STJ’s stock price dropped more than 10%. As a result of the report, more shares of STJ were traded on the date of the cybersecurity report release than on the day the acquisition was announced in April.  Muddy Waters and other short-sellers stand to profit even more if the deal falls through because of these cybersecurity lapse disclosures.

Public scrutiny around acquisitions has heightened for both companies involved in a deal. Senior leadership, including the Board of Directors, must ensure that cybersecurity due diligence is conducted as faithfully as any other diligence area.  In a 2016 NYSE Governance survey, three-quarters of respondents said that a high profile data breach at an acquisition target would have serious implications on a pending acquisition.  Moreover, more than half of the respondents said that a high profile cyber breach would diminish an acquisition target’s value.   Cybersecurity risk can be viewed and managed as a risk amplifier of other categories like financial, operational and strategic risk. Though cybersecurity issues sometimes surface during the early diligence phase, it is more often the case that issues don’t become apparent until after the deal closes – during the integration phase – leading to integration delays, cost overruns, and, worse case, a breach.

Source: The Cyber Short: Cybersecurity Implications and Considerations for M&A