Yahoo shareholders are now asking AOL to take over

Shareholders are upset with Marissa Mayer's acquisition strategy, see core business as undervalued

Financial trends and news by Steven Loeb
November 12, 2014
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Yahoo CEO Marissa Mayer has gotten a lot of flack recently from company shareholders regarding her leadership, with many going after the company's spending spree, in which it bought up a slew of startups, including 27 last year alone.

Many seemed to be giving Mayer the benefit of the doubt, especially given how much the company's stock has risen under her leadership... until the company had five quarters in a row of mounting losses, making it hard to justify the amount of spending it had to have taken to buy all of those companies. The company finally put a stop to that bleeding last month, but that may just be a temporary fix.

Investors are still not convinced that her turnaround plan will work, and at least two major shareholders are now actively courting AOL CEO Tim Armstrong to merge with Yahoo so that he can take over, according to a report from Reuters on Wednesday.

Here's the interesting part: Armstrong has reportedly been receptive to the idea, and is open to exploring it. No talks have taken place yet, though, and Armstrong would only go ahead with such a deal if it was "friendly," which I guess means only if Mayer is also on board with it. 

This is not the first time such a merger has been openly discussed. In September, Starboard Value LP sent a letter to Mayer, urging her to purchase AOL.

"[W]e believe a merger of AOL and Yahoo's core business may be one of the best ways to both fully seize the cost reduction opportunity and also to tax efficiently monetize Yahoo's noncore equity holdings," it said in the letter.

Shareholders, including Starboard, feel that Yahoo's core business is currently undervalued. The company currently has a market cap of $47.19 billion, while its stake in online e-commerce giant is $44 billion. Investors think that Yahoo's other assets, including Yahoo Mail and website, should be worth as much as $7 billion.

A merger between Yahoo and AOL, some believe, would make their combined company a major competitor to companies like Google and Facebook in the areas of video programming and the purchase of digital advertising.

Yahoo just took a big step toward bolstering that part of its business with the purchase of BrightRoll, a programmatic video ad network and a provider of digital video advertising services, for $640 million on Tuesday. Yet another acquisition, though, which is sure to make investors even unhappier.

In her first year as CEO, Yahoo's stock rose nearly 75% with Mayer at the helm. At the end of trading on July 16th of 2012, the company's stock was $15.65 a share. At the end of trading Monday, Yahoo's stock was up 0.4%, or 11 cents, to $27.34 a share.

It is currently trading at $50.46 as of Wednesday, meaning it has now more than tripled since Mayer took over. 

A spokesperson from AOL had no comment on the report. Yahoo could not be reached for comment at this time, and we will update if we learn more. 

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