SAN FRANCISCO/NEW YORK (Reuters) - Activist investor Starboard Value LP said on Friday it has acquired a "significant" stake in Yahoo Inc (YHOO.O) and urged the Internet company to explore a merger with AOL Inc (AOL.N).
Shares of Yahoo Inc rose 4.2 percent to $40.59 at mid-afternoon, while shares of AOL jumped 3.3 percent to $44.39.
Starboard said a Yahoo-AOL merger could create up to $1 billion in "synergies" by reducing overlaps in online display advertising and other overhead costs. In a letter to Yahoo Chief Executive Marissa Mayer, Starboard said it was looking forward to "engaging directly" with Yahoo to discuss how its plan could be implemented in a timely manner.
"I don't think it will happen but I do think Yahoo is now in play. It puts more pressure on Mayer," Ironfire Capital founder Eric Jackson said, referring to a potential merger with AOL.
"Between now and four months from now someone will want to submit a short board slate and they will have a strong case," said Jackson who owns a stake in Yahoo. "Mayer is really under the gun to create value for shareholders and prove she is doing a better job than anyone else can do."
Starboard's involvement in Yahoo marks the latest chapter in Yahoo's protracted effort to revamp the Internet pioneer whose revenue growth has lagged competitors such as Google Inc (GOOGL.O), Facebook Inc (FB.O) and Twitter Inc (TWTR.N).
Shares of Yahoo have surged by more than 150 percent since Mayer took the helm in 2012, but investors say most of the gains have been due to the fast-rising value of Yahoo's stakes in Chinese e-commerce company Alibaba Group Holding Ltd (BABA.N) and in Yahoo Japan, a joint venture with Japan's Softbank Corp (9984.T).
Representatives from Yahoo and AOL did not immediately return requests for comment.
Figuring out a tax-efficient way to "monetize" the Asian stakes should be the top priority for Yahoo's management and its board, Starboard said, noting in the letter that a merger with AOL would be one way to achieve that.
The investor has explored several "alternative structures" that could deliver directly to shareholders with "minimal tax leakage," it said.
(Reporting by Alexei Oreskovic; Editing by David Gregorio and Richard Chang)
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