Activist-investor Starboard Value LP has reiterated that Yahoo Inc (NASDAQ:YHOO) should consider a merger with AOL Inc (NYSE:AOL) and cut costs to improve profits, spurred by media reports that Yahoo is exploring other large-scale acquisitions.
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Starboard, in September, urged Yahoo to consider merging with AOL on the grounds that a deal could create up to $1 billion in "synergies" by reducing overlaps in online display advertising and other overhead costs.
The activist-investor holds stake in both companies.
Starboard said in a letter on Thursday that it was "increasingly concerned" by media reports of Yahoo planning acquisitions as it believed the company should first focus on monetizing its investments in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo Japan Corp.
Yahoo holds an approximately 15 percent stake in Alibaba valued at about $39.17 billion as of Wednesday's close and about an $8 billion stake in Yahoo Japan, as of Sept. 30, 2014.
"A combination with AOL does make sense. They are two laggards who can combine forces and better compete with companies such as Google Inc," B. Riley & Co analyst Sameet Sinha said.
The Starboard letter highlighted reports speculating that Yahoo was considering buying cable assets, including Scripps Networks Interactive Inc (NYSE:SNI) and Time Warner's (NYSE:TWX) CNN.
Some large shareholders have also reached out directly to Starboard expressing their concern over the media reports, the activist-investor said.
Starboard disclosed a 7.7 million share stake in Yahoo and a 1.9 million share stake in AOL in November.
Yahoo's shares were up 2.4 percent at $49.75, while AOL was up 4.6 percent at $48.27 in afternoon trading on Thursday.
(Reporting by Abhirup Roy and Subrat Patnaik in Bengaluru; Editing by Savio D'Souza and Simon Jennings)