Activist Investors To Yahoo: Merge With AOL, Thank Us Later

Investor group Starboard Value has published an open letter suggesting Yahoo should consider merging with AOL to bolster their flagging business.
Posted at 7:18 PM, Sep 26, 2014

The long-anticipated Alibaba IPO has come and gone, and tech giant Yahoo came away with $6 billion in cash and a $36 billion stake in the company. Not a bad haul.

But now that Yahoo's flush with cash, the question becomes: what's Yahoo CEO Marissa Mayer planning to do with that chunk of change, and can the Alibaba IPO help turn Yahoo's flagging business around?

Turns out, some investors have pretty strong opinions on the subject. Starboard Value, an activist investor group with a stake in Yahoo, has sent an open letter to Mayer, pushing Yahoo toward a merger with another tech giant, AOL.

Starboard's letter claims Yahoo's stock has been severely undervalued due to inefficiencies within the company. To remedy this, the investor group suggests a strategic partnership with AOL could "offer synergies of up to $1 billion ... [and] be able to more successfully navigate the ongoing industry changes."

You might remember Starboard from their previous viral manifesto — an almost 300-page takedown of Olive Garden owner Darden Resturants, which criticized the Italian chain for serving too many breadsticks and failing to salt the pasta water, among other sins.

But Starboard also has a history with AOL — in 2012, the group tried and failed to install three new directors on AOL's board.

Starboard's complaints echo a lot of the concerns currently surrounding Yahoo. The company's stock has been downgraded three times following the Alibaba IPO amid worries about the company's core business.

Given the grim outlook surrounding Yahoo's stock, one CNBC analyst wonders if Starboard is actually interested in renovating the fading tech giant.

"I'm wondering if Starboard is just trying to get the pop in the stock, and then get the heck out. Because there's no long-term game plan for Yahoo here."

Both Yahoo and AOL shares jumped after Starboard's letter went public. Starboard also suggests Yahoo could make more money by minimizing tax inefficiencies and curbing expensive acquisitions.

This video includes images from Getty Images.