Starboard's Jeffrey Smith Doesn't See Yahoo!-AOL Merger Making Sense 'Right Now'

Activist hedge fund Starboard Value LP had publicly urged Yahoo! Inc. YHOO last September to merge its core business with AOL, Inc. AOL, something that it reiterated in January this year.

However, the hedge fund isn't pressing for that merger anymore, even though it is engaged in "good dialouge" with Yahoo! on other issues.

Jeffrey Smith, Starboard Value founder, was recently on CNBC to discuss why the fund changed its stance on the Yahoo!-AOL merger and why activist investing is about creating value rather than picking on a company.

Just About Value

"For us, it's really just about value and making sure we are doing the right thing for the company and the shareholders," Smith said.

"As it relates to Yahoo!, if you add up the pieces, if you add up Alibaba and Yahoo! Japan and the cash – that's worth more than the whole market-cap of the company. Plus, you are still getting the operating business, which has a billion dollars in EBITDA."

Related Link: Morgan Stanley Is Finding More In Yahoo!

He continued, "It's not personal. It's not picking on the company. And I don't think anybody else is picking on the company. It's just about value.

"If we can help the company, if we can help management and the board unlock that value and figure out how they can make some changes that improve the value for the company, then that's good for shareholders – and we are a large shareholder."

Merging Doesn't Make Sense Right Now

On the company not pushing Yahoo! anymore to merge its core business with AOL, Smith said, "Actually, the priority at first was to separate out Alibaba and to take advantage of getting the full value without the double taxation."

He explained, "One of the best ways to do that, we felt, was to merge the operating business of Yahoo! with AOL, thus leaving behind the Alibaba stake in a tax efficient manner.

"They were able to figure out –we didn't know if this was possible, because we are not insiders – but they were able to figure out how to do it in a forward way where they just took their Alibaba stake and they are going to spin that out in a tax efficient manner in a separately, publicly traded vehicle," Smith explained.

"So, merging with AOL still has strategic benefits and is still something that can work, but the idea of putting them together now probably makes more sense after the Alibaba spin happens. It's not that it doesn't make sense, it's just that it doesn't make as much sense right now," Smith concluded.