Mike Snider

USA TODAY

Verizon (VZ) is reportedly close to finalizing its purchase of Yahoo (YHOO).

The two companies were in discussions Friday and may announce a deal soon, according to several published reports. However, the transaction — which approaches $5 billion, one person told Bloomberg — is not final and could fall apart.

Shares of Verizon Communications (VZ) ended up 1.3% to $56.10 Friday. Yahoo (YHOO) shares closed up 1.4% to $39.38.

Representatives for Verizon and Yahoo declined comment.

Yahoo's board began the sale process four months ago after abandoning a spin-off of its valuable stake in Chinese retailing giant Alibaba (BABA), worth $32 billion, over concern about transaction taxes. In an effort to separate Yahoo's core business from that stake, the board agreed to explore a sale at the urging of activist investors including Starboard Value.

Under the potential deal, Verizon would buy Yahoo's core business, which includes advertising, search and content such as Yahoo Finance, Yahoo Sports and Yahoo Mail.

Verizon's bid could eventually include some of Yahoo's real estate, said CNBC's David Faber. The company has sought to sell its portfolio of thousands of patents, real estate and other assets. That would leave only its Alibaba stake and perhaps its 36% stake in Yahoo Japan, worth about $8 billion.

Verizon has long been considered the candidate to come out on top because the telecom provider has been beefing up its online video content and advertising on mobile networks. As far back as December 2015, Verizon CEO Lowell McAdam and CFO Fran Shammo said the company would look at Yahoo should it go up for sale.

"Obviously Verizon has been the heavy favorite all along through this process," said Eric Jackson, managing director of investment firm SpringOwl, a Yahoo shareholder that has pushed the company to replace senior management and slash its workforce.

Bids have been in the $5 billion to $6 billion range, "just for the business," Jackson said, who is not involved in the auction process. "As shareholders, obviously, we are hoping ... that it will be even higher."

Like Jackson, Starboard Value CEO Jeff Smith has been a vocal critic of CEO Marissa Mayer, who came to Yahoo from Google nearly four years ago with a goal of turning around the company. Yahoo added Smith and three other new independent directors to its board in April to avoid a proxy battle.

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Yahoo had been expected to announce the results by month's end. The company reportedly received final bids Monday, the same day it announced results for the second quarter.

Verizon's growing mobile video effort would benefit from Yahoo's video technology, content and its monthly draw of 1 billion monthly visitors across its various properties. An integration could be overseen by AOL CEO Tim Armstrong, who heads the unit acquired by Verizon in May 2015 for $4.4 billion.

"We continue to believe Verizon is the front runner as it can generate the most synergies from the core," said SunTrust Robinson Humphrey Internet equity analyst Robert Peck in a note to investors earlier this week.

Yahoo mum on sale as it misses, writes down Tumblr

If an expected Verizon matchup unravels, who's left? Other reported bidders for Yahoo are AT&T; a consortium that includes Warren Buffett's firm Berkshire Hathaway and Dan Gilbert, founder of Quicken Loans and owner of the NBA's Cleveland Cavaliers; and private investment firm TPG.

"There is still a chance one of these other players could come back and counterbid," SpringOwl's Jackson said.

Investors want a sale of the core business to go through because it could extract fair value for each part of Yahoo. Yahoo's market cap has fallen 21% since the end of 2014 to $37 billion -- less than the value of Yahoo's Alibaba holdings combined with itsstake in Yahoo Japan, thus pricing the core business at less than zero.

Yahoo's recent financial report only underscored the need for a sale, said some analysts.

After Yahoo revealed a $482 million writedown of Tumblr, which it acquired three years ago for $1.1 billion and had already written down by $230 million earlier this year, BGC Financial technology analyst Colin Gillis wrote: "We see the purchase price paid for Tumblr – and subsequent write downs -- as a perfect example of the misdirection undertaken by management."

It's "a reason why the core business should be sold off and this turnaround effort halted," he said.

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