The deal with Verizon, which is subject to approval by Yahoo's shareholders, regulatory and other approvals, is expected to close in the first quarter of 2017.
Verizon Communications on Monday said it will acquire Yahoo's operating business for about $4.83 billion in cash.
Yahoo, which was the entry door to the Internet for an early generation of web users, will be integrated with AOL under Marni Walden, EVP and President of Product Innovation and New Businesses organisation at Verizon.
The sale does not include Yahoo's cash, its shares in Alibaba Group Holdings, its shares in Yahoo Japan, Yahoo's convertible notes, certain minority investments, and Yahoo's non-core patents (called the Excalibur portfolio), it said in a statement.
These assets will continue to be held by Yahoo, which will change its name at closing and become a registered, publicly traded investment company, the statement said.
The deal with Verizon, which is subject to approval by Yahoo's shareholders, regulatory and other approvals, is expected to close in the first quarter of 2017.
Till then, Yahoo will continue to operate independently, offering its products and services to users, advertisers, developers and partners.
"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 Chairman and CEO Lowell McAdam said.
Founded in 1994 by Stanford graduate students, Jerry Yang and David Filo, Yahoo was one of the last independently operated pioneers of the web.
While many tech companies like web browser maker Netscape, never made it to the end of the first dot-com boom, Yahoo managed to grow from being a directory of websites to offering searches, email, shopping and news.
Yahoo chief Marissa Mayer, who joined Yahoo four years ago, failed to halt its decline as the company lost ground to larger rival Google.
Yahoo has a global user base of over one billion monthly active users, including 600 million monthly active mobile users, through search, communications and digital content products.
Mayer said the company "that has changed the world" and will continue to do so in 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," she added.
Verizon will generally issue cash-settled Verizon RSUs for Yahoo RSUs that are outstanding at the close.
Image: A Yahoo logo is pictured in front of a building in Rolle, 30 km (19 miles) east of Geneva. Photograph: Denis Balibouse/File photo/Reuters