Starboard Value has fired the next shot in its campaign for change at Yahoo. The firm said in January that it may push for a change in leadership, but for now, top executives’ jobs are safe. That could change though. The firm also shared four suggestions it thinks will increase value for shareholders.

Starboard writes to Yahoo management

In a press release today, Starboard announced that it had sent a letter to Yahoo CEO Marissa Mayer and the company’s board of directors. The firm also published the letter in full. Starboard applauded the recent decision to conduct a tax-free spinoff of Yahoo’s stake in Alibaba and offered additional suggestions.

The activist firm thinks Yahoo will be able to unlock $11.1 billion worth of value for shareholders if the company follows its suggestions. That would amount to about $11.70 per share.

Starboard suggests cost cuts

Starboard Managing Member Jeffrey Smith began the letter by suggesting that Yahoo should right-size its “bloated cost structure.” He pointed out that there has been a lot of discussion on Wall Street about why Yahoo stock didn’t react much when the company announced plans to spin off its stake in Chinese online retailer Alibaba.

Perhaps one of the reasons Yahoo stock didn’t move much when the announcement about the Alibaba stake spinoff was made is because of the company’s recent financial performance, which Smith called “unacceptable.” The Starboard executive expressed disdain at Mayer’s continual spending on acquisitions and costs for product development, which together amounted to $4.8 billion since she took the helm.

Yahoo in trouble

[drizzle]Excluding Yahoo! Japan, the company’s core business saw a 3% decline in revenue and a 27% decline in EBITDA last year. Management’s guidance for the current quarter suggested this pattern will continue.  But Starboard thinks this can be corrected with cost cuts.

The firm called Yahoo’s slow progress in completing a turnaround in its core business “troubling.” It also urged the company’s board to scrutinize the management team that was brought on board for the purpose of completing that turnaround. Smith blasted management’s spending of “huge sums to alter Yahoo’s competitive position in markets or product categories where the Company has little history of success.”

Instead, Starboard wants to see Yahoo cut up to $570 million in costs per year, which the firm thinks is doable. The firm estimates that this will unlock about $6 per share or $5.7 billion of value for shareholders. In order to achieve these cost cuts, the firm urged management and the board to narrow the company’s focus.

Monetizing Yahoo’s IP, real estate

In addition to cutting costs, Starboard suggests that Yahoo could license its intellection property better and monetize some of its real estate assets. They estimate that the assets are worth a total of about $1.80 per share or $1.7 billion in extra capital, which they think should be returned to shareholders. (All charts in this article are sourced from Starboard’s letter to Yahoo management.)

Starboard Yahoo

They suggest that Yahoo could “immediately” see $600 million to $700 million in value from its patent portfolio, although they point out that the search giant currently monetizes just a small chunk of its portfolio.

In terms of real estate, Starboard would like to see a sale of some of the up to $1 billion worth of real estate Yahoo owns. They point out that selling some of those assets wouldn’t have any direct impact on the operations of Yahoo’s core business.

Yahoo should spin off Yahoo! Japan stake

During Yahoo’s fourth quarter earnings call, management made some comments about their wish to monetize the company’s stake in Yahoo! Japan, and Starboard has a suggestion for this as well. After the spinoff of the Alibaba stake is completed, the firm estimates that Yahoo! Japan will make up nearly half of the search giant’s market capitalization and about 52% of its pro forma enterprise value. By separating the Yahoo! Japan stake, Starboard estimates that Yahoo could create about $2.6 billion or $2.70 per share to $3.1 billion or $3.30 per share of value.

Starboard Yahoo

The firm suggests that the spinoff could be structured in a manner that’s similar to that of Liberty Broadband. The firm’s management also thinks that it could create even more value than just the tax-free savings.

Up to $4 billion in share repurchases

Starboard also points out that Yahoo is sitting on $5.4 billion in net cash and that investors are naturally concerned about what that cash could be used for, particularly in light of management’s poor recent track record in acquisitions. Because of these concerns, the firm suggests that Yahoo would do well to return between $3.5 billion and $4 billion to shareholders through share repurchases.

That would leave the company with about $1.4 billion to $1.9 billion in net cash and at least $400 million in free cash flow to help with cost cuts.

Here’s a look at a summary of Starboard’s suggestions and how they could create substantial value for shareholders.

Starboard Yahoo

As of this writing, shares of Yahoo were down by 1.36% to $42.85 per share.

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