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By Ryan Knutson and Dana Cimilluca 

Verizon Communications Inc. is close to paying around $5 billion to buy Yahoo Inc.'s core business, people familiar with the matter said, absorbing a company that helped usher in the internet age but surrendered most of the profits to later entrants like Google and Facebook Inc.

Verizon, long considered the most likely buyer since Yahoo put its search engine and web properties on the market, could reach a deal to buy the company in the coming days, the people said.

Other bidders that had joined the auction of Yahoo could re-emerge, and an agreement with Verizon isn't guaranteed, two of the people cautioned.

"In order to maintain the integrity of the process, we won't be commenting until an agreement is finalized," a Yahoo spokeswoman said.

Shares of Yahoo rose 1.4% to $39.38 on Friday and have rallied since the company said on Feb. 2 it was exploring strategic options. Shares of Verizon gained 1.3% to $56.10. Bloomberg News earlier reported that Verizon was likely to prevail in the auction.

Verizon, with a market cap of about $228 billion, has the means to purchase Yahoo's Web assets and a logical blueprint for folding them into its fledgling digital media business, which includes AOL properties it acquired last year for $4.4 billion. The talks cover Yahoo's portal, search engine and properties like Yahoo Mail, Yahoo Sports and the Tumblr blogging service that attract tens of millions of visitors a month.

Verizon hopes video services and online advertising will become its next growth engine. It plans to combine customer data from smartphones with advertising inventory on AOL -- and possibly Yahoo -- to create an online advertising technology platform that can compete with Web giants such as Facebook and Alphabet Inc.'s Google, analysts say.

The sale would cap a stunning fall for Marissa Mayer, who was hailed as one of the most promising executives in Silicon Valley when she was hired as Yahoo's CEO in July 2012. Under Ms. Mayer, Yahoo has struggled to boost revenue despite spending some $2 billion to acquire more than 50 startups, including the $1.1 billion purchase of Tumblr. Yahoo since has written down more than $600 million of Tumblr's value. ( Follow Yahoo's rapid rise and long stock-market decline in this interactive timeline.)

The Sunnyvale, Calif. company's struggles put pressure on Yahoo directors to unlock some of the value trapped in its Asian investments. The bulk of Yahoo's roughly $37 billion market capitalization comprises its stakes in Alibaba Group Holding Ltd. and Yahoo Japan.

The board initially disclosed plans to spin off the Alibaba stake, leaving Ms. Mayer to run a smaller company focused on its Web search and internet properties. But the company switched course after an investor revolt led by Starboard Value LP that ended this spring with the activist investor taking nearly half of Yahoo's board seats.

On Monday, Yahoo posted a deeper quarterly loss that underscores the challenges facing its shrinking internet business. Its revenue, minus commissions paid to partners for web traffic, fell 19% in the second quarter -- the sixth decline in the past seven periods.

Under pressure from investors including Starboard, Yahoo moved to trim costs to make itself more attractive to buyers. The company cut its workforce this year by 15% to 8,800 employees at the end of the second quarter, helping boost its cash by 13% this year to $7.7 billion.

The cutbacks are an about-face for Ms. Mayer, who from the beginning stressed the need to invigorate the company by paying for talent through acquisitions and sealing pricey Web content deals.

Ms. Mayer made online video a centerpiece of her strategy. Last year, for instance, she paid $20 million to stream a football game between two National Football League teams, the Buffalo Bills and Jacksonville Jaguars.

But Yahoo has had to curb those ambitions. It last year wrote off $42 million in expenses for developing three video series, including a revival of the popular "Community" show. In January, Yahoo also shut online-video portal Screen after spending more than $100 million to make its own shows, excluding the cost of the employees involved.

Verizon plans to merge Yahoo's operations with its AOL businesses. Whether Verizon retains the Yahoo brand remains an open question. Verizon has been careful to keep AOL and other related acquisitions at arm's-length to avoid upsetting the culture, and there are no plans to scatter Yahoo assets throughout Verizon, one of the people said.

In an earlier round of bidding, Verizon offered about $3 billion for Yahoo's business and indicated it wasn't interested in acquiring certain assets, such as patents and real estate. In its latest bid, the carrier will likely only pay for the real estate that directly houses Yahoo's current operations and pay for patents that directly relate to its current services, one of the people said.

Verizon's pursuit of Yahoo illustrates the degree to which the former Baby Bell is seeking to transform itself. Landlines have been in decline for years, and Verizon is pulling back on its wired broadband business. It is focusing nearly all its energy on its wireless business, which accounted for 70% of its 2015 annual revenue.

But its wireless business is maturing, too. Verizon Wireless is the nation's largest carrier by subscribers, with roughly 112 million. Most of those customers have already upgraded to more expensive smartphones. Verizon is set to report its latest quarterly results on Tuesday.

--Deepa Seetharaman contributed to this article.

Write to Ryan Knutson at ryan.knutson@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

(END) Dow Jones Newswires

July 23, 2016 02:48 ET (06:48 GMT)

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