Starboard Value drops Yahoo!-AOL merger push

The activist hedge fund pressing Yahoo! for change is no longer insisting the Web portal merge with AOL.

In addition to dropping that demand, Starboard Value CEO Jeff Smith praised Yahoo! CEO Marissa Mayer’s plan for a tax-free spin-off its stake in Alibaba as “a good first step,” according to his third letter to Yahoo!, made public Monday.

But the activist investor was not all hugs and kisses.

Smith criticized Yahoo! for its bloated costs and a string of acquisitions he considers unproductive.

The hedge fund put the acquisition at $4.8 billion under Mayer’s 2½-year watch.

“Yahoo! is in need of a major overhaul,” Smith declared in his most recent letter.

But in his urging Yahoo! to “develop a comprehensive plan to maximize shareholder value,” Smith broke from precedent by no longer advising a tie-up with AOL.

Smith previously asserted that an AOL combination would deliver synergies between $1 billion and $1.5 billion.

Starboard didn’t explain why it is no longer pressing for the tie-up — but, as before, offered tips about how Mayer could rectify a stock price that trades at “a deep discount to the sum-of-its-parts valuation.”

Those tips include separating Yahoo! Japan from the company in a tax-efficient manner, monetizing Yahoo!’s intellectual property and real-estate assets and returning up to $4.0 billion of cash to stock owners through share repurchases.

Wall Street reacted negatively to Smith’s letter — dropping AOL 1.1 percent, to $40.35, while Yahoo! eased down 1.1 percent, to $42.98.
Yahoo! had no comment about Monday’s letter.