New York - With its hopes for a takeover by Microsoft (NASD: MSFT) all but evaporated, Yahoo (NASD: YHOO) continues to talk with media giant Time Warner (NYSE: TWX) about acquiring at least a portion of AOL, Bloomberg reported on Thursday. Citing two people familiar with the situation, the news service reported that executives from both sides continue to negotiate over terms of the potential deal, in which Yahoo would take over AOL's advertising business in exchange for a stake in the combined company.

One analyst told Bloomberg that the companies would need to cut as many as 3,000 employees for the deal to pay off.

On Wednesday, just a day after Jerry Yang announced his plans to resign as Yahoo's CEO, Microsoft CEO Steve Ballmer said that his company is no longer interested in acquiring Yahoo, but remains open to a search partnership.

Yang's downfall as CEO came in large part to his rejection of Microsoft's $33-a-sahre takeover offer last spring.

Since then, the company's shares have lost more than two-thirds of their value.

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