Yahoo! spent the July 4 bank holiday weekend in discussions with its lead adviser, Goldman Sachs, and potential bid partners including Time Warner to defend itself from a break-up by Microsoft.

The online search engine is seeking to re-heat talks with the cable company about a possible merger with AOL, its internet arm, in a deal that could be worth as much as $10 billion (£5 billion).

Yahoo! is trying to secure some kind of deal before its shareholders meet to vote on whether to re-elect their board on August 1.

The company has sought to re-open talks after it emerged last week that Microsoft is also in talks with companies such as Time Warner to try to launch a break up bid of Yahoo!.

The software giant wants to control Yahoo!'s internet search engine so that it can compete more aggressively with Google and seize a bigger slice of the online advertising market estimated to be worth about $40 billion and set to double by 2010.

Insiders at Yahoo! insist that an offer which sought to break up the company would not work because of the difficulty in valuing its non-search business.

Jerry Yang, co-founder and chief executive of Yahoo! is threatened on two fronts in the short term.

The first is a hostile break-up approach from Microsoft and the second is a boardroom coup by Carl Icahn, Yahoo!'s major shareholder.

Mr Icahn, the billionaire activist investor, has already nominated himself and other executives to replace the existing Yahoo! board.

He is angry that shareholders were not given the opportunity to vote on a $47.5 billion cash and shares offer from Microsoft in May, and wants investors to vote to remove the board when they meet in less than three weeks.

Mr Yang, advised by Goldman Sachs, the Wall Street broker, is keen to secure an alternative offer to present to shareholders at the annual meeting.

Microsoft is still smarting from being forced to walk away from its revised offer and of failing to construct a subsequent joint venture deal with Yahoo!. It is believed that Microsoft last week approached Mr Icahn.

The last offer, made by Microsoft in May, valued Yahoo! shares at a 72percent premium, or $33 a share. On Thursday evening - the last trading day before the bank holiday weekend - Yahoo! shares were trading at around $21.35 each.

Yahoo! failed to return calls yesterday and Mr Icahn, when contacted at the end of last week, was unavailable for comment.

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