SUNNY VALE, California: Struggling internet pioneer Yahoo is reportedly inching closer to a partnership with arch-rival Google as it attempts to fend-off Microsoft's unwelcome $42 billion (€26bn; £21bn) bid.

The pair have been testing, successfully by all accounts, the possibility of Yahoo outsourcing its core advertising search business to Google.

A deal would improve Yahoo's cash flow to the tune of $1bn-plus by allowing it to concentrate on its online brand advertising business where it has a stronger position.

A strengthening of its position against Microsoft would be an additional and welcome by-product.

In its quest for alternative scenarios to acquisition by the software colossus, Yahoo is also in talks with Time Warner over a possible tie-up with the latter's web division, AOL. Such an agreement would give TW a stake of around 20% in the merged business.

All parties' lips are sealed

Data sourced from Wall Street Journal Online; additional content by WARC staff