Activist Urges Yahoo Inc. To Buy AOL Inc.; Sell Non-Core Assets

Yahoo Inc.

shares jumped Friday after an activist shareholder urged the company to acquire AOL Inc.

. Starboard Value LP said the deal could produce more than $1 billion in synergies and provide tax advantages in the sale of Yahoo's non-core assets that now include a 15 percent stake in Alibaba Holdings Ltd.

and a 35 percent stake in Yahoo Japan. Yahoo gained nearly 4 percent recently, trading at $40.42 a share, while AOL traded recently at $43.84 a share, up 2 percent. "It is incumbent upon management and the Board to take immediate steps," Starboard said in a letter signed by Jeffrey C. Smith to Yahoo Chief Executive Marissa A. Mayer. Excluding the Asian assets, Starboard said Yahoo's core search and display advertising businesses has a current market value of "negative $11 billion." "Obviously, ascribing negative value to this large and profitable business is nonsensical," Starboard said. Starboard also urged the company to cut annual costs in its core business by up to $500 million and offered a scathing critique of Yahoo's aggressive acquisition strategy. Yahoo has signed $1.3 billion in deals since 2012, while revenue has "stagnated" and operating earnings have "materially decreased," Starboard said. Starboard, which mounted a failed 2012 proxy battle with AOL, said it holds "a significant stake" in Yahoo, although it hasn't made a regulatory filing required of holders of 5 percent or more.