Time Warner could provide Yahoo with an alternative to a hostile Microsoft takeover, whille Rupert Murdoch's News Corp remains in the running for the online giant, according to a report from the Wall Street Journal,

The Wall Street Journal said Time Warner wants to combine Yahoo with its AOL business, whereas News Corp is planning to partner with Microsoft in a joint bid for Yahoo.

The possible deal between Yahoo and AOL is a bid to thwart the Microsoft bid for Yahoo. Yahoo plans to present shareholders with a three-fold plan to move forward without Microsoft. The Yahoo plan would also include a multi-billion dollar stock repurchase as well as an advertising tie-up with Google, the report said.

A Yahoo-AOL deal would involve Time Warner folding AOL into Yahoo and making a cash investment in return for about 20 per cent of the combined company, the Wall Street Journal said. The deal would be valued at around $10bn, and would not include the AOL dial-up internet access business. Yahoo would use cash from the Time Warner deal to buy back several billions of dollars worth of its own stock.

Time Warner is under pressure to find a strategy for AOL because it has lost a lot of value since their merger in 2000, the report says. There is still a lot of work to do before a deal is reached, the paper reported.

Microsoft has already offered Yahoo shareholders a combined cash and stock deal valued at $42bn, and has stated several times that it will not raise its bid.

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