NEW YORK (TheStreet) - Yahoo! (YHOO) found itself back in the news on Friday after activist investor Starboard Value Partners announced it had taken a "significant ownership stake" in the search firm and announced ways for it to boost shareholder value.
Starboard Value Partners send Yahoo! a letter asking the Internet giant to take action to boost shareholder value. Among the changes the activist investor wants to see from Yahoo! included a potential merger with AOL. Starboard also suggested the company unlock value and tax efficiencies from its Alibaba (BABA) stake and Yahoo! Japan; reduce expenses, specifically within the display business; and halt its "aggressive acquisition strategy."
Yahoo! CEO Marissa Mayer said in a press release on Friday that "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."
Watch the video below for more on Starboard's proposal for Yahoo to merge with AOL:
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."
Yahoo! is scheduled to reported third quarter earnings in October. Analysts surveyed by Thomson Reuters expect the Sunnyvale, Calif.-based company to earn 30 cents a share on $1.046 billion in revenue.
Yahoo! shares rose 4.4% on Friday. The stock was trading roughly flat at $40.69 at last check on Monday. Here's what analysts had to say:
Youssef Squali, Cantor Fitzgerald (Buy; $43 PT)
We're not surprised by Starboard's overture (or Yahoo!'s response) last Friday to YHOO's management to 1) minimize the tax bill from the sale of its non-core Asian assets and maximize the return of proceeds to shareholders, 2) act fast on core to re-ignite top line growth, or 3) move aggressively to protect margins and maximize FCF. To be clear, none of what Starboard is requesting is new, in our view. Their claim that Yahoo! could reap substantial value from a tax-efficient treatment of the sale of its minority interest in Alibaba Group and Yahoo! Japan is consistent with what we've been saying - that there is up to $15/share of potential upside on top of our $43 PT (which assumes full tax treatment). As always, the devil is in the details, and it remains to be seen how Starboard is recommending that Yahoo! legally structures the transactions to minimize taxes. The proposed AOL combination has also been widely discussed in the media, and while we see merit in how the two companies could reduce expenses given their redundant operations, we believe that it'll be much harder to improve the combined top line given that both companies are losing share in Search and Display.