Yahoo! has spent the past week considering potential partnerships with other companies in the media and technology sector that would save it from being swallowed by Microsoft.
According to a report in The Times, one of the options being considered by Yahoo! is to restart merger talks with AOL, the online business owned by Time Warner.
The move comes barely a week after Time Warner announced it is to hive off AOL's internet access service from its faster-growing online business, which includes Advertising.com. Tie-ups with groups such as Google or Disney are also being looked at.
Yahoo! and AOL have entered held talks in the past, but failed to team up because of differences over price..
However, it is hoped that the urgency created by an unwelcome approach from Microsoft and the credit crunch will give the talks fresh momentum.
Jerry Yang, co-founder of Yahoo!, is today expected to inform Wall Street that his board has rejected the software giant's cash-and-shares proposal because it significantly undervalues the company. It is believed Yahoo! came to its decision at a meeting of its board on Friday night.
However, analysts are confident Microsoft will eventually clinch the deal at a higher price. Microsoft is reported to be taking its bid to win Yahoo! directly to its shareholders.
They believe Yahoo! will either begin negotiating final terms of an amicable sale to Microsoft or draw up plans for a break-up that would hand control of its search engine and a portion of its advertising business to rival Google.
Microsoft is desperate to take over Yahoo! because of the threat that Google's dominance of the online search advertising market poses to the computer company's future.
A report in the Financial Times says that Yahoo! is looking for a deal that comes in at least $40 a share, which would value Yahoo! at $66bn, adding $12bn to the price that Microsoft has offered.