The two companies are in advanced talks over a takeover of Yahoo that could be worth close to $5 billion, a person briefed on the matter said Friday.
Any transaction would be for Yahoo’s core internet business, although it is unclear whether a deal would also include other assets like real estate or patents.
Both companies are hoping to announce a deal as early as next week, this person said. Verizon is scheduled to report earnings on Tuesday.
When Yahoo finally began exploring a sale of its core business — a sprawling collection of properties including its sports and news sites, search engine, email and the social network Tumblr — Verizon was considered the front-runner by analysts and investors. The telecommunications behemoth already owned AOL, another onetime internet darling that had fallen far from its peak.
Bankers for Yahoo cast a wide net for the auction, and a number of potential suitors emerged. The field was winnowed down to a handful of bidders, which included AT&T; private equity firms like TPG Capital; and the Quicken Loans co-founder Dan Gilbert, who has received the backing of Warren E. Buffett’s company, Berkshire Hathaway.
But people involved in the process long believed that Verizon, with its enormous cash pile and its ability to wring out efficiencies by merging Yahoo with AOL, was the most likely winner.
Brian Wieser, an analyst with Pivotal Research, said that combining AOL with Yahoo would create a stronger No. 3 digital platform for online advertising, after Google and Facebook.
“This is a 1 plus 1 equals 2½,” he said.
No final deal has been reached and the talks could still falter, the person briefed on the matter cautioned. One of the other finalists in the Yahoo auction process could also re-emerge with a higher bid.
A spokesman for Verizon declined to comment, while a Yahoo spokeswoman said the company would not comment “until we have a definitive agreement to announce” because it wanted to maintain “the integrity of the process.” The state of discussions between Yahoo and Verizon was reported earlier by Bloomberg.
Verizon, which had $132 billion in revenue last year, has been trying to build up its digital content portfolio, particularly in mobile and video, to serve customers of its wireless phone, cable TV and internet businesses. Last year, it bought AOL for $4.4 billion, acquiring not just its content sites like the Huffington Post and TechCrunch, but also the advertising technology used to target online ads to internet users.
Yahoo would bring in a huge amount of additional news, sports and finance content — and the one billion people a month who visit Yahoo services — and would offer Verizon another set of sophisticated ad technologies.
Yahoo’s BrightRoll division in particular is a leader in delivering automated, real-time advertising, and could be merged with AOL’s ad technology to deliver more appealing options to marketers, particularly in video.
“They’re not going to be anybody’s first port of call,” Mr. Wieser said. “But they will have a deeper set of data than anyone except Facebook and Google.”
Verizon is lobbying regulators to allow it to more freely use the data it collects from its internet customers to sell targeted ads to marketers. The Federal Communications Commission has proposed consumer privacy rules that would restrict that kind of data use, but if those rules are weakened before adoption, Verizon could combine that data with the information that AOL and Yahoo collect from visitors to their properties to build deep profiles of individual web users.
That prospect alarms privacy advocates but elates marketers.
“Google has access to me on my mobile phone but is kind of missing the cable box and internet access data that Verizon has,” said Shar VanBoskirk, a digital marketing analyst at the research firm Forrester.
Consumers feel warmly about Yahoo as a brand, Ms. VanBoskirk said, even if they do not use many Yahoo services. By contrast, she added, “people have a pretty negative attitude towards telecom.” She said Verizon could rebrand some of its services with the Yahoo name to increase their appeal.
Any purchase of Yahoo carries some real risks, however. In addition to the F.C.C. rules that would make the data sharing less valuable, integrating ad platforms is a complex challenge, usually plagued with delays. The companies also have a different incentive structure for their advertising sales forces, according to Mr. Wieser, and unifying them could be disruptive.
AOL and Yahoo are longtime competitors, dating to the early days of the web. Tim Armstrong, the head of AOL, has also been a rival of Yahoo’s chief executive, Marissa Mayer, since the days when they both worked at Google. Ms. Mayer rejected the idea of merging with AOL a couple of years ago, but with Yahoo’s business now in deep decline and the board of directors eager to find a way out, she may have no choice.