Yahoo! Is in Play Thanks to Activist Starboard Buying Big Stake

NEW YORK (TheStreet) -- Yahoo!  (YHOO) President and Chief Executive Marissa Mayer needs a counter-offer to the one proposed by activist investor Starboard Value Friday that it has purchased a large stake in the Internet company and wants Yahoo! to merge with AOL (AOL) .

That idea has a lot of merit because there could be huge layoffs in the combined company, assets could be rationalized and earnings before interest, taxes, depreciation and amortization could be much higher. But I don't think it will necessarily happen.

If I was Mayer, I would know that the clock is ticking. Starboard will likely seek board representation on Yahoo!'s board in four months. 

And Starboard will have a good chance of getting a short slate of directors elected based on the disappointing results of the core business since Mayer took over. She doesn't want a bunch of activists on her board, but how does she fight that?

Mayer should call Alibaba Group (BABA)  Founder and Executive Chairman Jack Ma and SoftBank (TYO)  Chairman and Chief Executive Masayoshi Son right away and figure out a deal where they can all win. That could involve them buying Yahoo! or just buying back their stakes from Yahoo!.

Whatever the solution, it will have to be good for Alibaba, SoftBank and Yahoo! shareholders. Mayer must show shareholders that she can create more value for them than Starboard can.

Because Yahoo! is in play, its shares will likely continue to rise next week.

At the time of publication, the author was long YHOO, although positions may change at any time.

Follow @ericjackson

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation: 

"We rate YAHOO INC (YHOO) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, solid stock price performance, good cash flow from operations, expanding profit margins and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: YHOO Ratings Report

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