The Times reported that a team from AOL, the internet arm of media conglomerate Time Warner, met Microsoft officials to negotiate the possible split of Yahoo! which could lead to the software giant seizing control.

"It is understood that the AOL team flew to Microsoft's headquarters in Seattle to negotiate possible terms of a breakup that could see the software giant seize control of Yahoo!'s online search business.

"The talks, thought to be preliminary, precede Yahoo!'s annual meeting on August 1, when the activist billionaire shareholder Carl Icahn will seek to oust the board," the newspaper said.

According to the report, Yahoo! insiders insist that an offer that sought to break up the company would not work because of difficulty in valuing its non-search business.

For the past few months, Microsoft has been making efforts to acquire Yahoo!. A deal that would give an edge to the software giant to compete with rival Google in the fast growing online advertising market.

Last week, Yahoo! had rejected a joint proposal from Microsoft and billionaire investor Carl Icahn for a complex restructuring of the internet major. The offer included the buyout of Yahoo!'s search business by Microsoft.

In May, after making an offer of $33 per share to Yahoo!, Microsoft withdrew its proposal.

"Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer...," Microsoft CEO Steve Ballmer had said while announcing the withdrawal of offer.