VerizonMike Mozart / Flickr Creative Commons

Internet service provider Verizon Communications Inc dismissed rumours that it had offered to buy out Internet media firm AOL but didn't rule out a potential merger with the company.

On Tuesday, people familiar with the matter told Bloomberg that though Verizon hasn't made a formal offer to AOL, the two companies have been contemplating a merger or an acquisition deal with each other.

Verizon however made it public that it is looking to partner with a potential media and content providing firm and is more interested in a merger than an acquisition.

"There's a rumor in the papers today, and if I had a dollar for every company that we were supposed to buy, I would be very wealthy. I see us as more of a partner with media companies than a buyer of content," Verizon CEO Lowell McAdam said at an investor presentation.

"AOL, along with lots of other media companies, are potential for us to do partnerships," McAdam added.

The sources said that Verizon is drawn to AOL's programmed advertising technology and given the advantages a potential tie up could give both companies, a deal seems ideal.

"The wireless companies have a lot of data about who their customers are, and they haven't unleashed that treasure trove yet. For Verizon to put together a sophisticated adtech stack is a really smart idea," Barry Lowenthal, president of ad agency The Media Kitchen, was quoted by The Street.

Verizon is worth $148 billion and AOL $2.13 billion. AOL is a strategic fit for Verizon and would help the telecom company maximize its business through the ad business of AOL.

Analysts have given Verizon's shares a buy rating even though its stock has been trading 13 percent below its 52-week high.