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What to Expect: Yahoo, Tumblr Deal Tonight

May 19, 2013

Yahoo's deal to buy Tumblr.

By Cynthia Herbert :: 1:59 PM

If all of the news so far has been correct, Yahoo’s board of directors will meet tonight to discuss, and likely approve, the company’s $1.1 billion acquisition offer for start-up blogging site Tumblr.

The deal, the first major one of new CEO Marissa Mayer’s tenure, is an all-cash purchase, and will be a huge win for Tumblr investors if it is approved. Tumblr has raised about $125 million since 2007. It sits with a valuation around $800 million. Its investors include  Union Square Ventures, Sequoia Capital, and Greylock Partners, among others.

Tumblr’s CEO, David Karp, will most likely remain in a leadership position at the acquired company, according to sources familiar with the agreements. Tumblr will have a certain level of autonomy within Yahoo, but sources also say Mayer expects Tumblr technology to integrate closely into Yahoo’s current business operations. Karp will be given a four-year contract that can reward him for positive performance of the site.

With the Tumblr acquisition, Yahoo could open itself up to a younger, web-savvy audience that to this point, has largely discounted the company. With many Tumblr users in their teens and early 20’s, Yahoo is almost their parents’ company – not a name that has been hip or cool in their lifetimes. However, Yahoo will have to work to keep this audience from jumping ship once the acquisition occurs.

Tumblr users have long been resistant to advertising on the site. Within the last year or so, the site has slowly begun showing ads on Tumblr user dashboards, and this modest effort has returned about $13 million in revenue, with the potential to hit close to $100 million this year. The new Yahoo-owned Tumblr will have access to Yahoo’s advertising network and tools, which could be a blessing or a curse, depending on how the platform is rolled out.

If the deal is approved by Yahoo’s board, it will be publicly announced at a press event that Yahoo has already scheduled for Monday.