AABA Altaba Inc

By Douglas MacMillan and Dana Mattioli 

Yahoo Inc. has effectively hung a for-sale sign on its Web properties, signaling the possible end of a 20-year run by an Internet icon.

The company on Tuesday said it would explore "strategic alternatives" as part of a restructuring that will eliminate roughly 15% of its workforce. The announcement came alongside a dismal fourth-quarter report card in which Yahoo took a $4.5 billion charge to write down the value of businesses including its Tumblr blogging site.

Yahoo's move to mull its options, confirming a report earlier Tuesday by The Wall Street Journal, sets the stage for a possible bidding war between a wide range of potential buyers. About 1 billion people a month travel collectively to Yahoo's home page, email and other sites, making them an attractive asset to media conglomerates such as Wall Street Journal owner News Corp and IAC/InterActiveCorp, telecom giants including Verizon Communications Inc. and private-equity firm TPG--all of which have expressed interest in purchasing parts or all of the business, people familiar with the matter said.

Yahoo's next step may be to initiate a formal sale process, which entails setting up a virtual data room detailing the company's business metrics, and proactively reaching out to the most likely potential buyers. Or the board could choose to wait until a suitor approaches them with an offer, at which point it would weigh that against any counteroffers.

Estimating the value of Yahoo's business is difficult, because investors ascribe a large portion of its roughly $27 billion market value to its stakes in Alibaba Group Holding Ltd. and Yahoo Japan. Brian Wieser, an analyst at Pivotal Research LLC, estimates Yahoo's core business, excluding the Asian assets and its cash, is worth around $3.4 billion.

A sale process would also likely mark the end of Chief Executive Marissa Mayer's attempt to turn around Yahoo. Costs have risen, while revenue has shrunk in the 3 1/2 years since she took the reins. Fourth-quarter revenue excluding commissions paid to retail partners was about $1 billion, down 15% from a year ago and the lowest point during Ms. Mayer's tenure.

Her efforts were complicated in recent months by an exodus of top managers and growing impatience from investors, including hedge-fund activist Starboard Value LP, who has called for new leadership and a sale of the company.

In an interview, Ms. Mayer said she was confident a turnaround could still be accomplished. "I'm very much looking forward to the turnaround plan that I have presented today, and I think it will make us the best version of ourselves," she said.

Three years ago, Ms. Mayer said she planned to return Yahoo to a growth rate on par with competing Internet companies such as Google Inc. and Facebook Inc. The new plan represents a more realistic vision for turning around the business, she said.

"I probably now understand more of what the necessary steps and ingredients are and have a bit more realism in terms of how quickly they can be at companies as large as Yahoo," Ms. Mayer said.

Yahoo's plan did little to appease some shareholders including SpringOwl Asset Management LLC, which in December recommended the company cut up to 75% of staff and bring in a more operations-focused CEO.

"This is a company that has clearly suffered from a lack of focus," said Eric Jackson, managing director at SpringOwl. "We believe there is much more that needs to be done to improve the profitability of the business."

Investors have until March 26 to submit proxy proposals. Prior to Tuesday's announcement, Starboard has indicated it would nominate a slate of new directors. The investor didn't respond to a request for comment.

At the moment, Yahoo is focusing on trimming costs to make it more attractive to investors or buyers. Yahoo said that by the end of 2016, it anticipates having about 9,000 employees and fewer than 1,000 contractors, which represents a workforce that is roughly 42% smaller than it was in 2012. The company sees the cuts resulting in savings of $400 million a year.

In a call with analysts on Tuesday, Ms. Mayer said the restructuring would help Yahoo improve its focus on three key areas: search, communications and digital content.

"We will simplify the business to improve execution," Ms. Mayer said on the call. "Yahoo cannot win the hearts and minds of users and advertisers with a complex portfolio of assets."

Ms. Mayer is also betting Yahoo can make headway in mobile search, even though the company has failed to gain any ground in Web search from Google and Facebook. Yahoo has been working on a search engine tailored to mobile phones that can help people quickly find their personal information or the right apps, people familiar with the matter have said. "We really think mobile search needs a much deeper reimagination," Ms. Mayer said Tuesday.

In the meantime, Yahoo also said it has begun to explore divesting itself of nonstrategic assets, such as patents, the sale of real estate, and other noncore assets. Through the end of the year, the company estimated that these efforts could generate between $1 billion and $3 billion in cash.

"The board also believes that exploring additional strategic alternatives, in parallel to the execution of the management plan, is in the best interest of our shareholders," Yahoo Chairman Maynard Webb said in a news release. That represents a broadening in stance from December, when Mr. Webb said the company wasn't interested in a sale but would entertain offers as part of the board's fiduciary duty.

Yahoo also said Tuesday that finance-industry entrepreneur Charles Schwab is resigning from its board. Mr. Schwab was among the seasoned executives Ms. Mayer added to the board as she put her own stamp on its governance.

Mr. Schwab, whose departure will leave the Yahoo board with seven directors, pointed to his other professional commitments and demands on his time and said his departure wasn't related to any disagreement with the company.

Shares of Yahoo, down 35% over the past year, fell 1.2% to $28.72 in after-hours trading.

Yahoo reiterated Tuesday that it will continue exploring a separation of its operating business from its stake in Alibaba. "I do feel comfortable we can do it this year," Chief Financial Officer Ken Goldman said on the earnings call.

Write to Douglas MacMillan at douglas.macmillan@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

February 02, 2016 22:46 ET (03:46 GMT)

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