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Mayer's failure to uphold Starboard cost-cutting deal led to Yahoo woes: WSJ

Marissa Mayer, left, and Jeffrey Smith.
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Marissa Mayer, left, and Jeffrey Smith.

A new report alleges that part of Marissa Mayer's current troubles at Yahoo may be due to the fact that she failed to uphold a promise to an activist investor to limit the company's costs.

The Wall Street Journal reported on Friday that Mayer and Starboard Value LP CEO Jeffrey Smith "struck a secret truce" in April 2015. In exchange for Mayer and her team trying to be more conservative with Yahoo's spending, Smith agreed to recant his board nominations at the time.

In the year before the agreement, Yahoo built up its advertising business through purchases like Flurry and BrightRoll for $200 million and $640 million respectively, as well as Luminate and Media One Group. It also purchased Cooliris and LittleInc, among other tech companies.

However, after the truce, Yahoo still made major acquisitions including the shopping site Polyvore Inc. for $160 million. It also purchased the rights for the first streaming-only National Football League game for a reported $20 million. The WSJ said that Yahoo's total expenses rose 21 percent after the first two quarters of the agreement, compared to an increase of a little under 6 percent the year prior.

The article continued that Mayer's inability to cut costs and her belief that the company could still rebound led Yahoo to the situation it is in today.

Eventually in April, Yahoo agreed to put Smith and three of his director nominees on its board. Smith was also put in charge of Yahoo's independent committee to oversee its auction process. Verizon and AT&T are said to be the top contenders for Yahoo's core internet assets.

Yahoo stock was trading at $37 a share on Friday, down 0.8 percent at time of publication.

Yahoo declined to comment. Starboard Value LP did not respond to CNBC's requests for comment.