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Activist investor pushes Yahoo to buy rival AOL

By WTOP Staff

MICHAEL LIEDTKE
AP Technology Writer

SAN FRANCISCO (AP) — Yahoo CEO Marissa Mayer is getting some unsolicited advice on how to turn around the long-struggling Internet company, just like some of her predecessors who tangled with investors dissatisfied with management’s performance.

In a letter Friday, activist investor Jeffrey Smith urged Yahoo Inc. to buy another fallen Internet star, AOL Inc. and take steps to reduce the future taxes on the company’s lucrative stake in China’s Alibaba Group. He also chastised Mayer for spending $1.3 billion to acquire an Internet blogging service and more than two dozen other startups during the past two years with little to show in return so far.

To bolster his arguments, Smith says he has built a “significant” stake in Yahoo through Starboard Value LP. The size of the stake wasn’t quantified in the letter and hasn’t yet been divulged in regulatory filings.

The idea of Yahoo and AOL getting together isn’t a new one. Various analysts and other Internet observers have argued a marriage between the two companies would allow them to cut costs, attract more Web surfers and, most importantly, strengthen their online advertising arsenal to improve their chances of competing against Internet stalwarts Google Inc. and Facebook Inc.

“It makes a lot of sense,” said BGC Financial Partners Colin Gillis.

In a statement, Mayer said she looked forward to discussing Smith’s ideas. “Going forward, we have great confidence in the strength of our business,” Mayer said.

AOL didn’t respond to requests for comment Friday.

The prospect of a change in Yahoo’s recent direction seemed to excite investors. Yahoo’s stock rose $1.71, or 4.4 percent, to close at $40.66. AOL’s stock added $1.58, or 3.7 percent, to finish at $44.55 as investors reacted to a potential buyout bid.

Smith agitated for change at AOL in 2012 after he acquired a 5.3 percent stake in that company and mounted an unsuccessful campaign to win three board seats. He didn’t express any interest in trying to replace anyone on Yahoo’s nine-member board, which includes Mayer.

This is the third time in the past six years that an activist investor has targeted Yahoo for a shake-up. Billionaire Carl Icahn seized three spots on Yahoo’s board in 2008 after attacking the company for spurning a $47.5 billion takeover offer from Microsoft Corp. Hedge-fund manager Daniel Loeb also wound up with three board seats in 2012 after orchestrating the ouster of one of Yahoo’s previous CEOs, Scott Thompson.

Since becoming Yahoo’s CEO in July 2012, Mayer has been buying startups and trendy services such as Tumblr in an effort to appeal to a younger demographic and expand Yahoo’s audience on smartphones and tablets as more people rely on those mobile devices to connect with digital services.

Given that AOL is still closely associated to the days when people relied on dial-up modems to surf the Web, Mayer might view a buyout to be “too backward-looking for Yahoo,” Gillis said.

Yahoo could easily afford to take over AOL, whose market value is currently hovering around $3.5 billion. After paying taxes, Yahoo is expected to pocket about $6 billion from selling 140 million of its shares in Alibaba, a rapidly growing e-commerce company that went public last week.

Yahoo still holds a 15 percent stake in Alibaba worth about $34 billion, an asset that Smith contends has been mismanaged. He believes that Yahoo could boost its stock price by about $16 per share by coming up with a strategy that would minimize the company’s taxes when it sells the rest of its holdings in Alibaba Group and another investment in Yahoo Japan.

One way this might be done would be to engineer a tax-free spin-off of Yahoo’s Asian investments, though Smith didn’t explicitly float that idea in his letter. He said Starboard has discussed several “alternative structures” for Yahoo’s Asian investments with tax specialists.

As it is, Yahoo’s stakes in Alibaba and Yahoo Japan are valued at a combined $42 billion. Before the letter was released, Yahoo’s total market value stood at $39 billion — an assessment indicating that investors put little or no value on the company’s ongoing U.S. business while discounting for the taxes that currently would have to be paid in eventual sales of the Alibaba and Yahoo Japan stakes.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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