The New York Post, citing two unnamed sources familiar with the negotiations, said the companies are close to an agreement that would have Microsoft acquire a large stake of AOL, with the idea of rolling it into its own Web property, MSN.
Redmond is reportedly interested in buying a 50 percent share of the struggling online business, leaving the two companies equal partners in the venture, according to the report.
A spokeswoman from Time Warner declined to comment. Microsoft was not immediately available for comment.
While the paper reports that executives are looking to complete the deal within a few months, Time Warner is also in talks with Yahoo and Google over a possible sale if the Microsoft merger falls through.