Yahoo! near pact with AOL to thwart Microsoft

Yahoo! Inc is close to an agreement to combine operations with Time Warner Inc's AOL unit in a bid to fend off Microsoft's $44.6 billion takeover offer, according to a report on the website of Bloomberg.

The report, quoting a person who asked not to be identified because the talks are not public, said Yahoo! would gain control of AOL, receive an investment from Time Warner, and give up a 20% stake in the combined entity.

The investment would let Yahoo! buy back billions of dollars of its own stock, the person added.

Yahoo! chief executive officer Jerry Yang is racing to find alternatives to Microsoft's $31-a-share bid. Yesterday, Yahoo! said it would display some web search advertising links sold by Google Inc, a move that may give Yahoo! more time to convince investors it can remain an independent company.

The talks with AOL and Google, owner of the most-used Internet search engine, indicate that Yang is making progress two months after telling investors that the company is seeking alternatives to Microsoft's bid, the report said.