AOL Inc is exploring strategic options, which include a possible tie-up with Yahoo Inc, and has retained financial advisers to do so, the Wall Street Journal reported on Sunday (Nov. 7), citing unnamed sources.

A source close to Yahoo told Reuters the company, however, is not actively eliciting or reviewing proposals, and nor is it in active discussions with AOL.
AOL and Yahoo weren't immediately available for comment.

AOL has not reached out to Yahoo with a proposal, the Journal said, adding that AOL's advisers have been showing company officials different ideas about a potential deal.

These options include merging Yahoo's and AOL's online businesses and spinning off Yahoo's Asian assets to give shareholders back some capital, the paper reported. Another idea would have private equity buy a stake in the combined operations and give a dividend to Yahoo shareholders, the paper said.

AOL is also looking at alternatives other than a deal with Yahoo, the paper reported on its website.

Last month, a source told Reuters that several private equity firms had approached Internet and media companies including News Corp and AOL to gauge their interest in buying out Yahoo.

A potential deal would be contingent on Yahoo selling its prized Asian assets, including a 40% stake in China's Alibaba Group and 34.5% of Yahoo Japan, the source told Reuters at the time.

Last week, AOL reported a 26% fall in quarterly revenue because of steep declines in search and display advertising.

AOL chief executive Tim Armstrong has been trying to turn around the company, known for its dial-up Internet access business, into an media and entertainment powerhouse.

AOL has been immersed in a blur of sales, launches and acquisitions, including purchasing the influential technology blog TechCruch for about $30 million.

Still, a deal with Yahoo is not easy. Last month, several senior tech and media bankers scoffed at the notion of a tie-up between AOL and Yahoo, and suggested that AOL is frantic in finding alternatives for its lackluster business.