Yahoo Board Approves Tumblr Deal for $1.1 Billion in Cash

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Marissa-Mayer

Marissa-Mayer

Last Friday, we shared a reported rumor that Yahoo is in talks to acquire Tumblr for as high as $1.1 billion. According to The Wall Street Journal, Yahoo’s board of directors approved a $1.1 billion purchase of the microblogging site this week.

Tumblr would continue to be run as a separate business and independent property, the WSJ’s sources said, and we could see an official announcement very soon from both companies. The transaction would add Yahoo to the list of established Internet companies, including Google and Facebook that have spent $1 billion or more apiece to buy startup companies in hopes of gaining an edge in growth.

Is that what Marissa Mayer is trying to achieve?

Based in New York, Tumblr boasts 108 million blogs and 175 employees. As part of the deal, All Things D reports that Tumblr CEO David Karp is incentivized to stay at Yahoo for four years. The service, which generated just $13 million in revenue last year, is expected to remain relatively independent.

Yahoo Chief Executive Marissa Mayer’s deal for Tumblr would give Yahoo, one of the original big Internet companies, a fast-growing Web service that could fill one of its many holes—namely, the lack of a thriving social-networking and communications hub. Tumblr is popular with many younger adults, in contrast with Yahoo’s older customer base.

The deal size is raising some eyebrows, since, as Fortune’s Dan Primack tweeted, Yahoo had only $1.2 billion cash on hand as of its most recent quarterly earnings, which makes an all-cash offer for Tumblr a lot more of a stretch than it would be for someone like Apple, or even Facebook, which acquired Instagram for $1 billion in a mix of both cash and stock. Yahoo’s purchase of Tumblr, if the terms are correct, is a strong indicator of just how badly it wants to expand into media-based social networking.

Yahoo is on a buying spree and has picked up a few companies to boost their presence. Recently, Yahoo acquired Summly for $30 million.