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AOL up 3.5 percent in active trading. To merge with Yahoo?

Written By | Sep 26, 2014

WASHINGTON, September 26, 2014 – Long rumored, reports are now surfacing that Jeffrey Smith’s activist investment firm Starboard Value LP is strongly urging Yahoo! (YHOO) to consider a “strategic combination” with AOL, aka America Online (AOL).

Starboard, said to own a “significant stake” in YHOO, reportedly views such a combination as synergistic and a potentially excellent use of Yahoo’s cash windfall that resulted from the company’s partial sale of its Alibaba (BABA) shares during the Chinese online retail giant’s recent, massive IPO. In addition, Starboard has been urging YHOO to deeply slash its overhead costs as another step toward achieving genuine but heretofore-elusive profitability.

Smith has been making waves recently due to his firm’s aggressive moves to replace current management at floundering family restaurant company Darden Restaurants, Inc. (DRI), owner of Olive Garden and other restaurant concepts. It remains to be seen if he can force Yahoo’s hand in an AOL deal.

But given Yahoo’s at least temporarily overflowing treasury, it was likely only a matter of time before the vulture capitalists started circling, eager to get hold of at least some of that cash either via a leveraged buyout or by forcing a hopefully synergistic merger with an entity like AOL.




Meanwhile, on the Alibaba side of the occasion, listed options in the stock were offered and traded for the first time today, drawing heavy action, helping the company’s stock, drooping a bit after its IPO, to bounce up 31 cents to $89.93 early Friday afternoon.

For its part, Yahoo! stock, badly mauled in the days following the Alibaba IPO as investors took profits in YHOO’s run-up, is benefiting from the AOL buzz Friday afternoon, currently trading up $1.48 at $40.43 per share, a 3.8% improvement over yesterday’s dismal $38.95 close.

UPDATING: 

Yahoo! CEO Marissa Mayer acknowledged receiving a letter from Starboard Value’s Jeffrey Smith Friday evening proposing a number of corporate actions, including a merger with or acquisition of AOL, that would “increase” the value of Yahoo! stock for its long-suffering investors.

In a prepared statement Mayer responded to the missive in part by stating, “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.”

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Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17