Yahoo Inc's Significant Stake In Hands of Activist Investor Urging AOL Merger
Nothing To Cheer About: Yahoo Inc's Significant Stake Lands In Hands of Activist Investor Urging AOL Merger
Marrisa Mayer has had to step in for damage control after Starboard Value LP swopped in and acquired a significant stake in the global search engine and urged the Internet firm to agree to a merger with AOL Inc. Starboard is the second activist investor to target Yahoo in the past 3 years. The investor is also urging the Internet company to monetise its Asian assets that are beyond the enterprise value of the actual business.
Starboard have Yahoo little to cheer about (or nothing) for that matter when it stepped up to comment on the lagging growth and fortunes of the internet search engine in direct contradistinction to its more successful rivals (read FB and Google Inc). Starboard sent a latter to Mayer saying it seeks to engage “directly” with the Internet company to see the manner in which the plan can be implemented within a certain time frame.
Starboard is an ex activist investor in AOL and it has indicated the merger could create synergies amounting to USD 1 billion through what it terms as reduction overlaps in online display ads as well as other overhead costs. AOL and Yahoo have been on the same boat for some time now. With shrinking profit margins, the two are no match for the two at Google. Starboard has now decided to rock the boat and this is going to be one interesting process.
But Yahoo is not exactly drawing up losses. Shares of the internet company rose by 150% sice Mayer grabbed onto the helm in 2012, but investors are of the opinion that the magic genie which revived its fortunes is the stake in Chinese e-commerce group Alibaba Group Holdings Ltd. Yahoo Japan, its JV with Softbank Corp did not hurt either. Minimal tax leakage from the Ali Baba IPO is what Starboard is rooting for.
Other areas where it wants Yahoo to rev up its engine are as follows. Firstly, the investor activist wants substantial cost efficiencies through reduction in losses and expenses, specifically those related to the display business to the tune of USD 250 to 500 million. Another area where Starboard is expressing concern is the aggressive acquisition strategy being followed by Yahoo even as consolidated revenues have remained stuck and EBITDA has even lessened. The investor activist has also urged a merger with AOL Inc to revive its fortunes.
Starboard has even been quoted by Forbes as saying, “Even after the previous ill-timed and tax-inefficient sales of Alibaba stock, 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.”
Yahoo released a statement by CEO Marrisa Mayer to Forbes saying "We are committed, as an organization, to acting in the best interests of the Company and all of its shareholders. We have maintained, and will continue to maintain, an open dialogue with all of our shareholders. 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. Going forward, we have great confidence in the strength of our business. The management team and the Board of Directors remain committed to building value for all shareholders through the continued execution of our strategy, investing in products that will drive sustainable growth: search, communications, digital magazines and video. We continue to leverage our portfolio of world-class products, which include Yahoo Search, Mail, News, Sports, Flickr, Tumblr and advertising solutions among others. Additionally, we will continue to focus on evaluating various capital allocation initiatives, an update to which we plan to provide on our third-quarter earnings call.”
With so much at stake, Yahoo needs to get its act together and go a little overboard in attempts to create shareholder value. After all, Starboard is always waiting in the wings with added inputs and a call for merger.
