Activist investor Starboard Value LP pushed Friday for Yahoo
Inc. to explore a possible combination with AOL Inc. and encouraged
the Internet pioneer to slow its acquisition strategy.
Starboard, which says it has a significant stake in the company,
said a potential deal with AOL could improve Yahoo's competitive
position and deliver cost synergies of up to $1 billion.
Representatives from Yahoo and AOL weren't immediately available
for comment. Starboard's exact position wasn't disclosed, but
taking a position of at least 5% would have forced the firm to make
a regulatory disclosure.
Yahoo and AOL have explored a possible deal in the past, The
Wall Street Journal has reported. Analysts have said a Yahoo-AOL
merger could create a strong competitor in the market for online
display ads, which include video, banner and interactive ads.
One potential obstacle to a deal was thought to be the
complexity of spinning off Yahoo's Asian assets.
But Starboard suggested Yahoo should unlock the substantial
value from Yahoo's 15% stake in Alibaba and its 36% stake in Yahoo
Japan.
"These two minority equity interests are worth approximately $11
billion, or $11 per share more than the current enterprise value
of" Yahoo, Starboard said in its letter.
Confidence in Yahoo has waned since Alibaba Group Holding Inc.
went public earlier this month and the Internet company sold a big
portion of its stake. That sale exposed Yahoo and its Chief
Executive Marissa Mayer to more scrutiny about the eroding value of
its core online advertising business.
Starboard has been an AOL shareholder in the past and mounted an
unsuccessful proxy fight in 2012 to win several seats on the
company's board. At the time, the firm criticized CEO Tim
Armstrong's strategy of investing heavily in online content,
specifically the company's Patch local news unit. Earlier this
year, AOL sold most of the Patch network to an investment firm
specializing in turnaround situations.
Meanwhile, Starboard also criticized Yahoo's acquisition
strategy, saying it has led to $1.3 billion in capital spending
since the second quarter of 2012. During that time, revenue has
remained stagnant and adjusted earnings have materially decreased,
the investor said.
Starboard is also in the middle of a drawn-out proxy fight with
Darden Restaurants Inc. and on Thursday won the support of two
influential proxy-advisory firms in its bid to unseat the
restaurant operator's 12-person board.
Write to Lauren Pollock at lauren.pollock@wsj.com
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