NEW YORK: An activist investment firm Friday urged Yahoo to explore a tie-up with online rival AOL, saying such a deal could help the struggling Internet pioneer “unlock” value for shareholders.
Starboard Value LP, which said it had acquired a “significant” ownership interest in the company, said in an open later to Yahoo chief Marissa Mayer that bringing together the two early Internet giants could lead to “up to $1 billion of synergies” and lift the value of Yahoo as it divests a large portion of its stake in Chinese online group Alibaba.
Silicon Valley-based Yahoo acknowledged it received the letter from Starboard and said that it intends to act in best interests of the company.
“We have maintained, and will continue to maintain, an open dialogue with all of our shareholders,” Mayer said in a released statement.
“As part of our regular evaluation of Yahoo’s strategic initiatives to drive sustainable shareholder value, we will review Starboard’s letter carefully and look forward to discussing it with them.”
Starboard’s move comes amid intense scrutiny over Yahoo, which like AOL is pushing heavily in digital media as part of reorganization efforts.
Starboard said that the value of Yahoo’s core business as measured by its share price is virtually nil, when excluding the valuation of its holdings in Alibaba and Yahoo Japan.
Starboard’s analysis said Yahoo’s Alibaba stake is worth $34 billion and its holdings in Yahoo Japan valued at $7.8 billion.
With Yahoo’s $8.6 billion cash stockpile, its enterprise value should be worth roughly $50 billion, but its market capitalization determined by its share price is just $39 billion, according to Starboard, leaving an $11 billion “valuation gap.”
The investment firm said the reason for the gap is that Yahoo has poorly managed both its asset sales and investments, by pursuing a strategy of buying up startups “at massive valuations with seemingly little to no regard for profitability and return on capital.”