AOL Inc, undergoing a radical transformation into the king of content on the Internet, is actively exploring a breakup of the company involving a complicated series of transactions that may lead to a merger with Yahoo Inc, sources close to the plans said.

The plans are still in the exploratory stage and Yahoo has not been contacted, the sources said. The plans are also fraught with complications involving myriad moving pieces but would entail breaking apart AOL's two main business: its legacy dial-up Internet service and display advertising business.

In many respects, the latest discussions are derivative of plans contemplated back in 2008 and 2009 before Time Warner spun off AOL to Time Warner shareholders. AOL has continued to explore a break up option since the December 2009 spin off.

You can drive the pieces into people's hands that could pay top dollar for them and create value, or spin them off, said one of the sources.

This type of structure would also be contingent on the buyers for the parts, including Yahoo and EarthLink, whose strategies have changed since Time Warner had considered these plans, said the sources.

These plans come amid a painful turn-around strategy led by AOL CEO Tim Armstrong, who has quickly divested weak properties such as social networking website Bebo, and buying high profile blogging network site TechCrunch

(Reporting by Nadia Damouni in New York; Editing by Kenneth Li and Dhara Ranasinghe)

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