Ever since Microsoft's takeover bid for Yahoo fell apart, rumors have linked both companies to potential partnerships with Time Warner's AOL. Now, according to a Reuters report, discussions with Time Warner to sell or merge AOL with either Microsoft or Yahoo are gaining some steam.

There is no deal in place for either company yet, according to a source familiar with the talks, but recent reports suggest that Yahoo would merge with AOL, with Time Warner owning a small stake in the combined company. A deal with Microsoft would likely involve a sale of AOL.

Merging with AOL would likely solidify Yahoo, which has been mired by an executive exodus since the Microhoo mess and still faces a proxy battle from billionaire investor Carl Icahn at its Aug. 1 shareholder meeting.

Icahn, meanwhile, recently proposed a deal that would have sold Yahoo's search advertising business to Microsoft and given Icahn control of the rest of the company. That proposal was quickly rejected, and Yahoo Chairman Roy Bostock called the plan "ludicrous." Yahoo has a search deal with Google, and while that agreement still isn't finalized, the latest reports indicate it could be detrimental to advertisers.

If Microsoft were to acquire AOL, it would greatly increase the software giant's display advertising business and generate more traffic through AOL's content sites. At the same time, the acquisition could heal the wounds of the failed Yahoo takeover bid.