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 Their move follows an activist campaign by hedge fund Starboard
Value LP, which is pushing Yahoo to consider a deal with AOL and
unlock Yahoo's valuable stakes in Asian Web companies.
Armstrong has been receptive to these Yahoo shareholders and
acknowledged the potential benefits of a deal, the Yahoo investors
said.
But he has downplayed the possibility of a transaction, according to
the investors and two sources close to AOL. There are no talks
between the two companies and Armstrong has indicated he would only
consider a friendly deal, the investors said.
AOL and Yahoo declined to comment. The total holdings of the Yahoo
shareholders who had made overtures to Armstrong could not be
determined.
Two top-10 AOL investors said that they also met with Armstrong in
recent weeks to discuss the possibility of a deal with Yahoo. These
shareholders were left with the impression that a combined company
could yield as much as $1.5 billion in cost savings.
Starboard, which did not speak to Reuters, wants Yahoo to spin off
its Web and email business, merging them into AOL, one Yahoo
investor who has spoken with the activist said. That would leave
Yahoo’s holdings in Chinese e-commerce giant Alibaba Group Holding
Ltd <BABA.N> and Yahoo Japan Corp <4689.T> in a separate company,
satisfying investors who want the company to monetize those assets.
Starboard was once active in AOL and lost a 2012 battle to unseat
three board directors.
Yahoo’s market value is about $47 billion, while its Alibaba stake
alone is worth $44 billion, meaning the current Yahoo share price
reflects little value to the core business. Some of the investors
see the email, Web site and other operations worth as much as $7
billion.
Armstrong, a former Google executive who has been at the helm at AOL
since 2009, is credited with reviving a dying brand, helped by a set
of purchases including Adap.TV, an automated video advertising
platform. AOL’s market cap of $3.5 billion has roughly doubled in
value during his tenure.
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Yahoo stock has tripled since Mayer joined Yahoo as CEO in July
2012, but analysts say those gains have been primarily driven by the
rapid appreciation in the value of its Asian assets. Mayer has urged
investors to be patient for what she has said will be a multi-year
effort to revitalize the company.
Some of the investors seeking a merger want Mayer to pull back from
acquisitions, although on Tuesday the company announced a $640
million deal to buy video advertising platform BrightRoll -- a
competitor to Adap.TV.
The investors in favor of a deal said they believe a combined Yahoo
and AOL would make a stronger competitor to Google and Facebook Inc
<FB.O>, when it comes to video programming and automated ways of
buying digital advertising.
But analysts have pointed to risks and raised questions about
whether the combination will yield strong growth.
(Additional reporting by Alexei Oreskovic in San Francisco, Editing
by Paritosh Bansal and Peter Henderson)
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