The Chinese internet company has already struck a deal with Singapore investment arm Temasek and DST Global and agreed to issue preferred shares and bank loans to raise $4.6bn of the $7.1bn it requires for the purchase.
Alibaba was bought by Temasek from its employees last September in a tender offer alongside DST, Silver Lake and Yunfeng Capital.
The new deal will value Alibaba at about $35bn and provide Yahoo with much-needed cash to perform a share buy-back and rescue its falling share price.
It will also return voting control of the company back to Alibaba founder Jack Ma.
Alibaba is also in talks with private equity firms including Bain Capital, Blackstone Group and Hony Capital to help fund the remaining $500m, according to Reuters.
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