Yahoo, AOL Stocks Rise as Investor Pushes for Combination
Starboard lobbied for changes at AOL a couple of years ago and now owns a stake in Yahoo
The stocks of Yahoo and AOL rose Friday after activist investor Starboard Value urged Yahoo to consider a combination with AOL.
The firm said in an open letter that it currently owns a "significant" stake in Yahoo, led by CEO Marissa Mayer, after previously failing in an attempt to push for changes at AOL, helmed by CEO Tim Armstrong. Starboard said a combination of the two online firms would create synergies and chided Yahoo for its recent acquisitions.
At the end of trading, AOL shares had risen 3.7 percent at $44.55. Yahoo's stock was up 4.4 percent at $40.66.
Yahoo previously had to deal with activist investor Third Point, a hedge fund headed by Daniel Loeb that sold its stake last year. The letter unveiled Friday, from Starboard managing member Jeffrey Smith to Mayer, listed "several opportunities to unlock tremendous value for the benefit of all Yahoo shareholders."
One of them was exploring "a strategic combination with AOL," with Starboard saying this "could improve Yahoo's competitive position, deliver cost synergies of up to $1 billion and potentially facilitate the realization of value from Yahoo's non-core equity stakes with minimal tax leakage."
Smith wrote: "A combination of Yahoo and AOL could offer synergies of up to $1 billion by significantly reducing the cost overlaps in their display advertising businesses as well as synergies in corporate overhead."
In Nov. 2012, Starboard reported that it had sold its remaining stake in AOL after losing a proxy fight to change the company. Starboard had at one point owned as much as 5.2 percent of AOL.
The investment firm on Friday also said it would like to see another change: "halting Yahoo's aggressive acquisition strategy, which has resulted in $1.3 billion of capital spent since the second quarter 2012 while consolidated revenues have remained stagnant."
Plus, it said Yahoo should address minority stakes and put them into one of several "structures that would allow for a tax-efficient monetization."
Highlighting the "tremendous excitement" around Alibaba, in which Yahoo continues to own a stake, and its IPO, the firm said: "Yahoo's remaining stake in Alibaba is currently worth more than the entire enterprise value of Yahoo. When adding Yahoo Japan, these two minority equity interests are worth approximately $11 billion, or $11 per share more than the current enterprise value of the company. This is before ascribing any value to Yahoo's core business, intellectual property or real estate holdings and clearly shows the dramatic valuation discrepancy that currently exists at Yahoo."
Overall, Starboard emphasized that "Yahoo's core business is valuable" but added: "Clearly, Yahoo is deeply undervalued relative to the sum of its parts."
AOL declined to comment.
Sept. 26, 10:35 a.m. Updated with AOL no-comment.
Sept. 26, 1:32 p.m. Updated with closing share prices.
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