Yahoo, AOL Rally Following Starboard Letter

Shares of Yahoo! Inc. YHOO and AOL, Inc. AOL rallied Thursday following the release of a letter from Starboard Value LP to Yahoo CEO Marissa A. Mayer.

The letter claimed that the “$1.3 billion [Yahoo!] spent on acquisitions has clearly not delivered value to shareholders.  Not only do we believe that many of the acquired companies were, and still are, losing a considerable amount of money, but we also believe that these acquisitions, on a combined basis, have failed to deliver material revenue growth.”

Rather than pursue additional acquisitions, the letter sought action on the following four points:

1. "Unlocking the substantial value from Yahoo's non-core minority equity stakes in Alibaba Group Holding Limited ("Alibaba") and Yahoo Japan in a structure that delivers value directly to Yahoo shareholders in a tax-efficient manner;"

2. "Realizing substantial cost efficiencies by reducing expenses throughout the Company, specifically with a goal of reducing losses in the Display business by between $250 and $500 million;"

3. "Halting Yahoo's aggressive acquisition strategy which has resulted in $1.3 billion of capital spent since Q2 2012 while consolidated revenues have remained stagnant and EBITDA has materially decreased; and"

4. "Exploring a strategic combination with AOL, Inc. – a company we know well – which could improve Yahoo's competitive position, deliver cost synergies of up to $1 billion, and potentially facilitate the realization of value from Yahoo's non-core equity stakes with minimal tax leakage."

Investors appeared to cheer Starboard’s ideas.

Shares of Yahoo recently traded at $49.86, up 2.62 percent.

Shares of AOL recently traded at $48.35, up 4.8 percent.