Activist investor Starboard Value LP has acquired what it says is a “significant” stake in Yahoo!, and is already making recommendations for the Internet giant’s corporate roadmap. Namely, it’s “suggesting” that it seek a "strategic combination" with AOL (News - Alert) amid lackluster earnings and an increasingly crowded competitive field.

"We believe a merger of AOL and Yahoo's core business may be one of the best ways to both fully seize the cost-reduction opportunity and also to tax-efficiently monetize Yahoo's non-core equity holdings," Starboard said in a letter to Yahoo CEO Marissa Mayer.

Aside from eliminating a big competitor from the market and creating Google (News - Alert)-rivaling behemoth for online advertising, a tie-up could deliver cost synergies of up to $1 billion, Starboard estimated.

Starboard also said that Yahoo! needs to reduce costs and avoid acquisitions for a while; it noted that Yahoo has spent $1.3 billion since the second quarter of 2012, while revenue has remained flat and earnings have actually decreased.

And, it urged the company to monetize its Asian holdings, specifically when it comes to Alibaba and Yahoo Japan. Yahoo! has a 15 percent stake in Alibaba and its 36 percent stake in the Japanese property—both of which Starboard said could be exploited to much greater effect, up to and including a spin-off.

“These two minority equity interests are worth approximately $11 billion, or $11 per share more than the current enterprise value of [Yahoo],” Starboard said.

Overall, "we believe that the execution of these initiatives would produce tremendous value for shareholders," the letter said.

It’s unlikely that the suggestion will remain without heat for very long: Starboard said it was looking forward to "engaging directly" with Yahoo to discuss implementation of the plan.

In a statement, Mayer said: "We are committed, as an organization, to acting in the best interests of the company and all of its shareholders. We have maintained, and will continue to maintain, an open dialogue with all of our shareholders. As part of our regular evaluation of Yahoo's strategic initiatives to drive sustainable shareholder value, we will review Starboard's letter carefully and look forward to discussing it with them."

Starboard’s exact position in Yahoo! wasn’t disclosed, but judging from the lack of public information it is under 5 percent—taking an interest of 5 percent or more requires a regulatory disclosure.