The company has sent letters to a number of potential buyers for the patents, which date back to when the company was founded in 1996 and also include its original search technology.
A news report, citing sources close to the talks, said execs at the two firms had met several weeks ago and had spent several hours looking at whether a strategic combination might make sense.
Bidders include frontrunner Verizon, inventor Dan Gilbert (backed by Warren Buffett), TPG, and a consortium that includes Bain Capital and former Yahoo CEO Ross Levinsohn.
Yahoo said earlier in the month it took a $230 million impairment charge related to Tumblr and was considering strategic alternatives for its core internet business.
The move comes two days after Bloomberg reported activist investor Starboard Value LP was taking initial steps toward a potential proxy fight with Yahoo.
The layoffs, which would result in more than 1,000 people leaving the tech giant, is set to affect Yahoo's media business, European operations, and platforms-technology group.