Verizon, TPG, YP Holdings All Want Yahoo, But Company Warns Of Search Engine Revenue Drop

According to a report by Bloomberg, Yahoo! Inc. YHOO is likely talking with just three players to sell its Internet assets.

Bloomberg, citing "people familiar with the matter," stated that Verizon Communications Inc. VZ is battling with the private equity firm TPG and the digital-advertising business YP Holdings.

Bloomberg suggested that Yahoo's Internet properties is a "strategic investment" for Verizon, and it will likely combine the Internet assets with AOL. The telecommunication company is believed to be working with at least three financial advisers on a potential Yahoo bid.

More than 1 billion people use Yahoo's e-mail service or browse its finance, sports and video sites. This would represent a "prized asset" for Verizon to mix with its more than 112 million wireless subscribers.

YP Holdings is also working with bankers to "investigate a variety of strategic alternatives, which would include acquiring smaller firms or selling itself," Bloomberg also reported. The company's relatively small size makes it an ideal candidate for a Reverse Morris Trust, which would involve a tax-free merger with a spun-off subsidiary of Yahoo's core business.

Meanwhile, the New York Post is reporting that Yahoo is "predicting painful revenue drops" in its core search and display-ad business this year – a "grim outlook" that has "frightened away" many potential buyers for the declining assets.

Shares of Yahoo were trading lower by 0.03 percent ahead of Tuesday's market open.