After a series of purchases of companies not quite as hot as rivals and dumping a hefty portion of its Alibaba shares too early, Yahoo has again found itself being encouraged to marry away its financial problems with AOL.
Several of Yahoo's top shareholders have returned to raising the issue of merging with AOL, a move that would net a significant tax break and shake up leadership.
Shareholders and analysts continue to express doubt over Yahoo CEO Marissa Mayer's strategy to turn the company around.
Recently, Yahoo purchased video ad platform BrightRoll for $640 million. While the efficiency with which BrightRoll delivers video ads along with relevant content could give Yahoo's ad space a boost, the move is failing to impress investors and analysts.
"Typical Yahoo deal -- buy the also-ran at double the price," says Yahoo shareholder Eric Jackson. "Wish they bought Liverail. If it happens, it's far less objectionable than Tumblr or the 6 dozen acqui-hires -- at least there's going to be some revenue."
As far as those calling for Yahoo to join forces with its rival, their voices have been welcomed by AOL CEO Tim Armstrong. Yahoo investors describe him as receptive to the talk and indicate that Armstrong has even acknowledged the benefits of the merger.
While Armstrong says he hasn't been involved in any official talks on a merger with Yahoo, several top Yahoo stakeholders have reporting discussing the implications of the deal with the AOL CEO. The party concluded that AOL and Yahoo could generate synergies of approximately $1.5 billion.
Activist investment group Starboard has been calling for Yahoo to merge with AOL, but it thinks the deal should result in a spin-off of stagnant services.
Starboard is said to have suggested that Yahoo spins its web and email sectors off, and then merge the units into AOL. By some estimates, approximately $40 billion of Yahoo's market valuation of $47 billion is primarily composed of the 404 million shares of Alibaba it didn't dump before the Chinese e-commerce company's IPO -- it sold 120 million shares.
Merging with AOL would help Yahoo efficiently dispose of the taxes it incurred in the sale of its Alibaba shares. Yahoo stakeholders would likely have to give incentives to the AOL side for mitigating the taxes, but it may be the option that makes the most people happy.
"There's nothing else that Yahoo can do that would create that much value," says a top Yahoo shareholder who wishes to remain unnamed. "Anyone who owns Yahoo is doing it for the tax-efficient disposal of those stakes."
