The Times is reporting that Yahoo is going to revive merger talks with AOL just 1 day after it rejected a hostile takeover bid by Microsoft.

The move is reported to be a bid to protect itself from the computing giant whose $45 billion (£23 billion) hostile bid approach was rejected yesterday.

"The proposal is not in the best interests of Yahoo and our stockholders", Yahoo said in a statement.

The Times says that the management team at Yahoo, along with advisers from Goldman Sachs and Lehman Brothers have used the time since Microsoft's initial offer to find alternatives that would protect Yahoo from this takeover bid.

Possibilities being considered along with a merger with AOL, are tie-ups with Google (as we reported) or with Disney.

Google, in particular, has been very vocal in its opposition to Microsoft's bid and so may be open to a plan to protect its rival, Yahoo.

But there is history between Yahoo and AOL, as the two companies have discussed a possible merger previously - however The Times reports that these fell through because of differences over the price.

Interestingly, Google has a 5% stake in AOL, which is owned by Time Warner.

As we reported on Sunday, it looks unlikely that Yahoo execs are to hold talks with Microsoft unless the latter offers at least $12 billion more, representing a share price value of more than $40.

A source close to Yahoo’s thinking told The Times: "All they [Microsoft] are trying to do is pick off the company on the cheap. They’re trying to steal it. And the board is not going to let that happen. They have gone for a valuation that reflects the five-year low of the stock".

The source added: "It would have to be in the 40s to start talking, and we would have to get over regulatory issues. It would have to be an offer that would give Jerry Yang (Yahoo's CEO) something to stand on a podium and smile about".

The Times adds that although executives at Yahoo seem to be rejecting Microsoft's advances, shareholders (of which Microsoft is one) may have other ideas

Microsoft is apparently appealing to shareholders now and may even launch a proxy fight in the next month, in which it plans to oust most of the Yahoo board and replace key executives with its own choice of management team, says the newspaper.

Any shareholder in Yahoo can nominate executives by next month, and these would then be voted on by all shareholders, including Microsoft.