Updated from 12:24 p.m. to include updated share price and Yahoo! response.
Starboard Value Partners sent Yahoo! a letter asking for the company to take several actions to boost shareholder value, including a potential combination with AOL. Shares of AOL closed the session higher, gaining 3.7% to $44.55 following news of the letter being made public.
Yahoo! responded after the close of trading, issuing a press release with comments from CEO Marissa Mayer, noting, "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."
Further in the letter, Yahoo! and Mayer noted the company will "continue to focus on evaluating various capital allocation initiatives, an update to which we plan to provide on our third quarter earnings call."
Here is the text of the letter, courtesy of Street Insider:
September 26, 2014
Marissa A. Mayer, President and CEOYahoo! Inc.701 First Avenue Sunnyvale, California 94089
cc: Board of Directors
Starboard Value LP, together with its affiliates ("Starboard"), is currently a significant shareholder of Yahoo! Inc. ("Yahoo" or the "Company").
By way of background, Starboard Value LP is an investment management firm that seeks to invest in undervalued and underperforming public companies. Our approach to such investments is to actively engage and work closely with management teams and boards of directors in a constructive manner to identify and execute on opportunities to unlock value for the benefit of all shareholders. Our principals and investment team have extensive experience and a successful track record of enhancing value at portfolio companies through a combination of strategic refocusing, improved operational execution, and more efficient capital allocation.
The purpose of this letter is to highlight several opportunities to unlock tremendous value for the benefit of all Yahoo shareholders. These opportunities include:
Unlocking the substantial value from Yahoo's non-core minority equity stakes in Alibaba Group Holding Limited ("Alibaba") and Yahoo Japan in a structure that delivers value directly to Yahoo shareholders in a tax-efficient manner;
Realizing substantial cost efficiencies by reducing expenses throughout the Company, specifically with a goal of reducing losses in the Display business by between $250 and $500 million;
Halting Yahoo's aggressive acquisition strategy which has resulted in $1.3 billion of capital spent since Q2 2012 while consolidated revenues have remained stagnant and EBITDA has materially decreased; and
Exploring a strategic combination with AOL, Inc. - a company we know well - which could improve Yahoo's competitive position, deliver cost synergies of up to $1 billion, and potentially facilitate the realization of value from Yahoo's non-core equity stakes with minimal tax leakage.
We believe that the execution of these initiatives would produce tremendous value for shareholders, and are squarely within the control of the Company's management and board of directors (the "Board"). We look forward to engaging directly with you to discuss the details of how these actions can be implemented in a timely manner.
Yahoo's main assets include its core Search and Display advertising businesses ("Yahoo's core business"), its non-core 15% stake in Alibaba, the world's largest e-commerce company, and its non-core 35.5% stake in Yahoo Japan, Japan's leading Internet advertising company.
There has been tremendous excitement around Alibaba and its IPO. 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.
--Written by Chris Ciaccia in New York
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