Yahoo Inc. and Time Warner Inc.'s AOL are closing in on a deal to combine their Internet operations, a move that could thwart Microsoft Corp.'s effort to acquire Yahoo, people familiar with the matter said Wednesday.
The possible Yahoo-AOL tie-up is part of a threefold plan by Yahoo to present shareholders with an alternative to Microsoft's unsolicited offer. Yahoo would also propose repurchasing billions of dollars of its own shares and is negotiating with Google Inc. about an advertising tie-up. On Wednesday, Yahoo announced a short-term test under which it will carry search advertising from Google.
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