December 11, 2014

Yahoo shareholders renew call for AOL merger

For years, AOL and Yahoo have struggled with image problems and pursued big-ticket mergers and acquisitions to find their way back to the cutting edge. Despite its $1.1 billion acquisition of Tumblr, the public still recognizes Yahoo as an outdated email platform and search engine, while AOL can't quite shake the memory of dial-up tones and Meg Ryan product placement with You've Got Mail. 

While both companies are manifestly not Google, now and then observers arrive at the suggestion that the two should combine their traffic and footprint into a single company. Most recently, major Yahoo shareholders renewed the argument that a technology merger would be beneficial, with analysts mixed on how that might look. Dubbed "activist shareholders," the group is reported to have lobbied AOL CEO Tim Armstrong last month to consider a deal, though no official talks have occurred. 

Bloomberg Businessweek reports that the suggestion came as a result of Yahoo shareholders' frustration with the low valuation of the web portal's core business. Merging with AOL would at least expand the reach of both companies, and build clout behind which the two companies could redesign themselves to compete. While Yahoo CEO Marissa Mayer has successfully overseen an appreciation in stock values and an aggressive course of M&A, shareholders hope to accelerate growth with AOL. 

"There is significant industrial logic behind a combination [of AOL] with Yahoo, although it always seemed unlikely that one of the management teams would step aside to make a transaction work," said Brian Weiser, a senior research analyst at Pivotal Research Group. "Moreover, among the two, AOL is the one which made the right calls in terms of how to evolve a legacy portal/ad network business into one positioned to maintain relevance with the advertising community." He added that Yahoo boasts more capital resources, so is more capable of initiating an acquisition.