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US telecoms firm Verizon has said it will create mobile media giant after snapping up Yahoo for 4.83 billion US dollars (£3.7 billion).

Verizon said the deal will create a combined company with one billion users and more than 25 brands which will be primed for “continued investment and growth”.

The crux of the move will see Verizon merge Yahoo with AOL, which it bought last year for 4.4 billion US dollars (£3.4 billion). The deal will include Yahoo’s email service and news, finance and sports websites, photo storage site Flickr and its advertising tools.

However, Yahoo’s cash, its shares in Alibaba Group Holdings and Yahoo Japan, plus a portfolio of patents, will continue to be held by Yahoo, but it will change its name and begin trading as an investment company.

Lowell McAdam, Verizon’s chairman and chief executive, said: “Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers.

“The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising.”

Verizon said the takeover still needs the approval of Yahoo’s shareholders and the green light from regulators. It expects the deal to be complete in the first quarter of next year.

Marissa Mayer, chief executive of Yahoo, said: “Yahoo is a company that has changed the world, and will continue to do so through this combination with
Verizon and AOL.

“The sale of our operating business, which effectively separates our Asian asset equity stakes, is an important step in our plan to unlock shareholder value for Yahoo.

“This transaction also sets up a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising and social.”

Yahoo has come under pressure from shareholders angry with a downturn in the company’s performance over the past eight years as it lost out to the likes of Google and Facebook. Last year, Yahoo booked a 4.4 billion US dollars (£3.4 billion) loss.

There was speculation that a deal with Verizon could end the four-year reign of Yahoo boss Ms Mayer, a former Google executive who has failed to turn the company around.

Tim Armstrong, chief executive of AOL, said the tie-up would help “unleash Yahoo’s full potential”. He added: “Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers.”

Yahoo put its core business up for sale in February after shelving plans to spin off its lucrative 33 billion US dollar (£23 billion) stake in Chinese e-commerce group Alibaba, which could have landed it with a tax bill of more than 10 billion US dollars (£7 billion).

The struggling internet giant – once considered an online trailblazer – previously announced a swingeing cost-cutting strategy, with plans to lay off around 1,700 employees in a bid to save 400 million US dollars (£282 million) a year to help offset falling revenues.

Linda Sullivan, partner and head of media and digital at Cavendish Corporate Finance, said the deal would lift Verizon’s advertising revenues and pose a challenge to online rivals Facebook and Google.

She said: “Online advertising is a key area that Verizon is trying to enter and its move to enhance its online content operation through Yahoo’s acquisition will inevitably unsettle Verizon’s two competitors dominating the online advertising space: Google and Facebook. With Yahoo, Verizon will increase its projected digital ad revenues in the US from 1.8% to 5.2%.”

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