YAHOO INVESTOR PRESSURE TO SELL CORE BUSINESS GROWS

Original Story: marketwatch.com

Another activist investor is pressuring Yahoo Inc. to move faster to sell its core business, amid growing concerns on Wall Street of a disconnect between Chief Executive Marissa Mayer and the company’s board over a potential sale. A Los Angeles finance lawyer is following this story closely.

On Tuesday, Canyon Capital Advisors, a Los Angeles-based hedge fund, wrote a letter to Yahoo’s YHOO, +0.80%  board about its concerns. According to a copy of the letter obtained by MarketWatch, the hedge fund wrote “that the process is not moving as quickly as it should and that Company management does not fully support the Board’s direction in this regard.”

The letter follows Yahoo’s statement on Friday that the board had formed a special committee to explore strategic options, while it still continues to consider a spin-off of its nearly $40 billion stake in Alibaba Group Holding Ltd. BABA, +1.88% That statement, combined with Mayer’s comments on Yahoo’s fourth quarter conference call, seemed to confirm that the board is at odds and operating separately of Mayer as it looks to possibly sell its core Internet business.

Canyon also noted in its letter that “Recent news reports indicate that, while there have been numerous expressions of interest, lack of engagements on the part of the Company has been a source of frustration to potential buyers.” Canyon added that while it hoped these reports are inaccurate and that there are always complexities to any sale process, “delay at this stage is unwarranted for any reason (including in an effort to defend against a threatened proxy battle).” Business exit planning is important to provide adequately for key partners financial needs.

In addition, Canyon advised that Yahoo “should not make any acquisitions, regardless of size and no matter how far the valuations of digital media assets fall,” a statement likely seeking to prevent Yahoo from buying any more startups as some private company valuations have tumbled.

A Yahoo spokeswoman did not respond immediately to a request for comment.

Canyon, according to FactSet Research, had a 2.5% stake in Yahoo as of Dec. 31 and the company is among its top 20 holdings. Canyon joins Starboard Value LP, another activist fund, which has been pressuring Yahoo to sell its core business. In a letter sent to the company in January, Starboard called for a change in leadership, a restructuring of the board and a new strategy.

With a growing chorus of vocal activist investors, Yahoo could be heading for a proxy battle to shake up its board of directors this spring. Bob Peck, an analyst with SunTrust Robinson Humphrey, wrote in a note last week that shareholders are required to deliver a written notice to Yahoo between Feb. 25 and March 26 if they want to nominate any potential directors to Yahoo’s board. “At this time, we think activist shareholders are likely to engage the Board and/or management in trying to negotiate a settlement,” Peck wrote last Thursday. “If it does not work out, we think the shareholders will likely wait until the latter part of the window to announce their nominations.” A Boston M&A attorney is reviewing the details of this case.

So investors will now wait to see what happens, now that Yahoo has hired investment bankers and activist investors are clearly gearing up for a proxy battle. It’s going to be a tough spring for Yahoo.

STARBOARD ENCOURAGES YAHOO TO EXPLORE STRATEGIC COMBINATION WITH AOL

Original Story: CNBC.com

Activist investor Starboard Value sent a letter to Yahoo CEO Marissa Mayer on Friday listing several opportunities to increase shareholder value and recommended that it merge with AOL.
Yahoo CEO Marissa Mayer acknowledged the letter Friday evening.

"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," she said, in a statement.

Starboard, which recently went after Darden for wasting money at its Olive Garden restaurants, said a tie-up between Yahoo and AOL could "offer synergies of up to $1 billion" and reduce corporate overhead cost.

Starboard said it had acquired a significant stake in Yahoo, adding that a possible AOL deal, along with other recommendations, would unlock tremendous value for shareholders.
AOL shares jumped as much as 6 percent after the news before easing, while Yahoo rose about 4 percent.

"[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," the letter said.

Starboard said the deal could help the companies navigate the ongoing industry changes, such as the growth of programmatic advertising and migration to mobile.

The letter, which was signed by Starboard CEO Jeffrey Smith, described Yahoo as "deeply undervalued relative to the sum of its parts" and said the company must take immediate steps to "remedy this valuation discrepancy."

Starboard pointed to a valuation gap of about $11 billion.

"The core problem for Yahoo, outside of Alibaba, is they don't really have an exciting story," said Gene Munster, an analyst at Piper Jaffray. "If they could use acquisitions as a way to drum up some excitement in a longer-term business I think that most investors would look upon that favorably."

Munster, who has a $48 share price target on the stock, said a potential AOL acquisition would add to Yahoo's financial value, but it wouldn't solve Yahoo's core issue: user growth. "AOL is a fading giant as is Yahoo ... the combination of that doesn't add excitement that new users are going to come to," he said.

Instead he said he believes Yahoo should should explore acquiring "something on the content angle."

While the proposed tie-up with AOL may not be "sexy," there are a lot of reasons to think a combined company would work, said Colin Gillis, analyst at BGC Partners.

For one thing, AOL would bring original video and original content that Yahoo has been openly seeking, Gillis said.

There's enough overlap that possibly significant cost savings could be found. And Yahoo clearly needs help gaining market share in the "raging bull market for online advertising," Gillis said.
Yahoo currently has a market valuation of $40 billion, in comparison to industry leader Google's nearly $200 billion market cap.

This is not the company's first encounter with a high-profile hedge fund. In 2012, activist investor Daniel Loeb sent a letter to Yahoo's board demanding that its then-CEO Scott Thompson be fired.

Loeb was a primary player in recruiting Mayer as Thompson's successor, but the two reportedly had major differences in opinion about Yahoo's strategy going forward, which eventually lead to Loeb's departure from the board, the New York Post reported last year.

AOL declined to discuss the matter, while Yahoo did not respond to CNBC's request for comment.