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Yahoo Is Following the Private Equity Playbook

April 19, 2016, 11:32 PM UTC

During Yahoo’s first quarter earnings call on Tuesday, CEO Marissa Mayer wanted to make one thing very clear: She is taking Yahoo’s sale process seriously. She is not, per prior reports (including this one from Fortune), reluctant to sell the company, even if a sale means she would be out of a job.

Yahoo’s management has made finding “strategic alternatives” a top priority, she stressed to investors. Management has participated in daily calls and meetings. “We have been very thoughtful about running a high quality process designed to keep interested parties engaged,” Mayer emphasized.

Those interested parties include a number of private equity firms. If any of them prevail, they’d likely slash costs, kill underperforming lines of business, and sell off real estate and intellectual property assets.

No surprise, Yahoo has been following that exact strategy for the past quarter.

The company cut many of its content verticals including food, health, and parenting. It is “sunsetting” others, including automotive, games, and real estate. It cut 1,200 jobs in the last quarter and has reduced headcount by 42% since 2012. It is closing offices in cities including Mexico City, Milan, and Burbank, Calif. It is selling real estate in Santa Clara, Calif. and intellectual property assets (most likely patents). The company aims to create cost-savings of $400 million this year and is looking for further opportunities to sell whatever it can. Yahoo (YHOO) even squeezed out some savings by hedging against the Japanese yen.

These are not the moves of a healthy, growing, innovative company. These are the financial engineering plays of a private equity firm.

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The problem is that investors know this is what Mayer should have done when she took the job three years ago. Instead of immediately reducing headcount, she went on an acquisition spree, invested in developing lots of products that never moved the needle (Livetext, say), and spent heavily on splashy media hires. In the process, she lost the faith of investors.

It’s easy to say, in hindsight, that Mayer should have cut costs three years ago. But Yahoo’s board chose her over more private equity-style candidates because she brought the hope of restoring Yahoo’s innovation engine. She fell short. Now cost-cutting and financial engineering is all that’s left. And nobody does that better than private equity.