Yahoo Should Consider A Deal With AOL, Says Hedge Fund

The activist hedge fund grabbing headlines recently for its engagement with Olive Garden took a “significant” stake in Yahoo and sent a letter to CEO Marissa Mayer encouraging her to consider a possible merger with AOL.

Ruben Sprich / Reuters

Here we go again.

Another large investor is calling for the possible merger of Yahoo and AOL, and has taken a "significant stake" in the former to pressure management into a deal. Starboard Value, most recently grabbing headlines for waging an increasingly aggressive campaign to unseat the entire board of Olive Garden parent Darden Restaurants, announced Friday that it had taken the stake in Yahoo and sent a letter to CEO Marissa Mayer offering its thoughts on why a merger with AOL would be in shareholders' best interest.

This isn't the first time the Yahoo-AOL merger idea has been recommended. Last week AOL shares spiked on speculation over whether the company was an attractive acquisition target for Yahoo, based on an analyst note.

The two companies, at their core, produce online content across a variety of verticals. Most recently, Yahoo has hired high-profile personalities like the New York Times' David Pogue, as well as Katie Couric, as part of its new strategy around "digital magazines."

Starboard's letter asserts a deal with AOL could create cost saving synergies of up to $1 billion. The hedge fund also wants to slow what it calls Yahoo's "aggressive" acquisition strategy that has seen $1.3 billion in deals since the second quarter of 2012.

This also isn't Yahoo's first bout with an aggressive activist hedge fund. Dan Loeb of Third Point Partners successfully agitated for a seat on the company's board in 2012, and ultimately spearheaded a campaign to replace then-CEO Scott Thompson with Mayer.

Shortly after Mayer began her new role, Yahoo closed a $7.6 billion buyback deal with Alibaba, which it bought for $1 billion in 2005.

And after Alibaba went public last week, Yahoo received a huge infusion of cash as part of its stake in the company, half of which it has pledged to return to shareholders. However, now that the Chinese e-commerce giant has gone public, eyes are once again on Mayer and her turnaround of Yahoo. For the past several years, the company's online advertising business has stagnated, and while Mayer has been able to sate shareholders by returning value from the company's Alibaba stake, she still has to find a future for Yahoo after Alibaba.

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