Hedge fund dealmakers are continuing to stalk two battered Internet heavyweights -- Yahoo and AOL -- and chatter focusing on some sort of combined deal involving the companies has progressed to the point where AOL has hired advisors to examine different scenarios, according to a Wall Street Journal report Monday.

With a market capitalization of $21.85 billion, Yahoo is more than eight times larger than AOL's $2.66 billion capitalization, but one scenario said to be under examination would have AOL acquire Yahoo in a so-called "minnow swallowing a whale" equity maneuver. Neither company has commented on the rumors.

Both firms, however, have been seeking -- so far unsuccessfully -- to regain their lost luster. After a disastrous merger with Time Warner and billions of dollars up in smoke, AOL was spun off as an independent company last December. Its new chief executive, ex-Googler executive Tim Armstrong, has been working to whip the company into shape since taking over the helm.

Ever since Yahoo turned down Microsoft's $31-a-share acquisition offer more than two years ago, Yahoo's stock has been stuck in a trading range of about half of Microsoft's offer. Yahoo's new president and chief executive, Carol Bartz, has sought to juggle Yahoo' assets -- still formidable -- but hasn't been able to engineer a higher Yahoo stock price.

The Wall Street Journal noted that any deal involving Yahoo would likely involve Yahoo's stakes in Yahoo Japan and in China's Alibaba Group. The biggest challenge facing private equity groups trying to hammer out any deal would be to dig through the labyrinth of connecting companies. Cisco, too, has an important stake in Alibaba, Microsoft provides its Bing search engine on Yahoo sites, and AOL uses some Google search technology on its sites, for instance.

To date, all the activity has been behind the scenes and none of the companies involved in any potential deals have commented on the reports.

For Further Reading

AOL May Acquire Yahoo, Report Says

AOL Completes Spin-Off From Time Warner

China's Alibaba IPO Raises $1.5 Billion But Cisco And Yahoo Strike It Rich

Microsoft Proposes To Buy Yahoo For $31 Share, In $44.6-Billion Deal