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Starboard Insists Yahoo! Inc. (YHOO) Buy Back Shares, Spinoff Yahoo! Japan

Jeffrey Smith‘s Starboard Value, a large activist shareholder of Yahoo! Inc. (NASDAQ:YHOO), stated in a letter written to Yahoo!’s board on Monday that the company made a “good first step” with its spinoff of its stake in Alibaba Group Holding Ltd (NYSE:BABA) into a separate company, but reiterated that the company remains undervalued and could take more steps to increase shareholder value, as reported by Reuters.

Jeff Smith

In the letter, the activist investor wrote “Yahoo is in need of a major overhaul.” Starboard recommended Yahoo! Inc. (NASDAQ:YHOO) to buy back $3.5 billion to $4.0 billion worth of shares, explore ways to monetize its intellectual property and real estate assets, aggressively cut costs, and separate its Yahoo! Japan stake in a tax efficient manner as it did with its Alibaba stake.

By following the steps described in the letter, Starboard states that Yahoo! Inc. (NASDAQ:YHOO) might be able to unlock $1.1 billion of shareholder value, or about $11.70 per share. Yahoo! Inc. is trying to reverse its multi-year decay in revenue, and has been facing increasing pressure from investors for more than two years after CEO Marissa Mayer took the reins with a bold comeback plan.

Since September, 2014, Starboard has suggested to Yahoo! Inc. (NASDAQ:YHOO) on different occasions that the company should be considering a plan to merge with AOL, so that the company can cut costs to improve it profits.

In January, 2015, Starboard told Yahoo! Inc. again that it was “increasingly concerned” about media reports of Yahoo planning further large-scale acquisitions. It stated again that the company will benefit in a great way by merging with AOL, declaring that Yahoo! Inc. could create up to $1 billion in “synergies” by reducing overlaps in online display advertising and other overhead costs.

Yahoo! Inc. said in January, 2015, that it planned to spin off its 15% stake in Alibaba in response to the pressure to hand over to shareholders its prized e-commerce investment.

“A combination with AOL does make sense. They are two laggards who can combine forces and better compete with companies such as Google” B. Riley & Co analyst Sameet Sinha said.

Yahoo! Inc. has spent about $4.8 billion on acquisitions and product development since the current management team took over. Starboard states that Yahoo! Inc. can reduce costs by $570 million per year from $330 million. The operating costs for the company went up 7% in 2014. Shares of Yahoo! Inc. were down 1% today, but the company’s shares have risen 12% since Starboard disclosed a stake in the company in September.

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