AT&T put in a bid for Yahoo's core business and is still in the race, according to a Bloomberg report citing sources.
Shares of AT&T sank near session lows following the news, before recovering to close up 0.3 percent.
The bid would place the telecom giant against its rival Verizon, which Bloomberg has reported is one of the main contenders in the bidding process.
Bloomberg said AT&T previously decided not to make a bid in April, but kept itself in the process with its stake in advertising firm YP Holdings. The advertising agency had contemplated merging with a spin-off of one of the subsidiaries of Yahoo's core business, but that is no longer the case, according to Bloomberg sources.
AT&T, Yahoo and YP declined to comment to CNBC.
Shares of AT&T have climbed more than 15 percent in the last six months.