Icahn

SAN FRANCISCO — Yahoo Inc. Chief Executive Jerry Yang spent months fending off Microsoft Corp.'s unsolicited takeover bid. Now he may only have a few weeks to persuade the software maker to revive its last offer of $47.5 billion or risk being fired in a shareholder mutiny led by activist investor Carl Icahn.

Spurred by outraged shareholders, Icahn notified Yahoo on Thursday that he will lead a revolt to oust Yang and the rest of the Internet company's board unless they renew negotiations with Microsoft that fell apart May 3 when the two sides couldn't agree on a price.

In a response late Thursday, Yahoo Chairman Roy Bostock signaled that the Sunnyvale-based company is prepared to battle the New York financier. He criticized Icahn for having a "significant misunderstanding of the facts" about Microsoft's offer and Yahoo's response. He also emphasized that Yahoo remains open to a sale "if it offers our stockholders full and certain value."

To pressure Yahoo, Icahn has nominated an alternate slate of directors to replace the board in an election scheduled July 3 at Yahoo's annual meeting. If the uprising is successful, an Icahn-led board presumably would fire Yang as CEO and try to negotiate a sale to Microsoft.

In his letter to Bostock, Icahn lambasted the board's actions as "irresponsible" and "unconscionable," given that Yahoo's stock stood at $19.18 before Microsoft first made its bid. He urged the board to reopen the talks.

"I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies," he wrote.

Bostock defended Yang and the board to Icahn. "We continue to believe that Yahoo's current board has the independence, the knowledge, and the commitment to navigate the company through the rapidly changing Internet environment and to deliver value for Yahoo and its stockholders."

To gain leverage in the looming battle, Icahn revealed that he has spent more than $1 billion snapping up 59 million Yahoo shares and options to give him a 4.3 percent stake. He plans to seek Federal Trade Commission approval to acquire up to $2.5 billion in Yahoo stock, including his current holdings.

Icahn's challenge opens a dramatic new chapter in a saga that began Jan. 31 when Microsoft stunned Yahoo with a takeover bid that started out at $44.6 billion, or $31 per share, then rose to $47.5 billion, or $33 per share, earlier this month.

The showdown now features at least five billionaires with diverse agendas: Yang and fellow Yahoo co-founder David Filo, who believe that Yahoo is worth at least $53 billion; Icahn and basketball team owner Mark Cuban, who has agreed to help shake up the company that made him rich; and Microsoft CEO Steve Ballmer, who, until recently at least, viewed Yahoo as a key weapon in his crusade to topple Internet search and advertising leader Google Inc.

Hoping to seal the deal, Ballmer verbally offered to buy Yahoo at $33 per share. But Yang and Filo — speaking on behalf of Yahoo's board — sought $37 per share, a price the stock hasn't reached in more than two years. The impasse prompted Ballmer to withdraw Microsoft's bid.

Yahoo shares rose 61 cents, or 2.3 percent, to finish Thursday at $27.75. That's its highest closing since Microsoft broke off talks.

While Icahn made it clear that he wants Yahoo sold to Microsoft, there are no guarantees that the software maker is still interested. A Microsoft spokesman declined to comment on Icahn's letter, saying the Redmond, Wash.-based company has "moved on."

Besides Icahn, the alternate slate includes Cuban, who sold Broadcast.com to Yahoo for $8.1 billion in stock in 1999. Cuban used part of his Yahoo windfall to buy the Dallas Mavericks, a National Basketball Association franchise. He called upon Yahoo to sell to Microsoft in a February blog posting.

If Yahoo can't find a way to placate Icahn, the battle threatens to distract Yahoo and the rest of the company's management from their turnaround efforts, said James Post, a Boston University professor specializing in corporate governance and ethics.

And there's no doubt that Yahoo shareholders are furious, said Darren Chervitz, co-portfolio manager of the Jacob Internet Fund, which owns about 100,000 Yahoo shares. "There's a strong feeling that Yang and the board did not do their fiduciary duty," he said. "They had a very strong offer on the table and did everything to brush it aside, if not sabotage it."

Paulson & Co., a New York hedge fund that owns 50 million Yahoo shares, said Thursday that it will back Icahn's alternate slate if Yahoo's board doesn't negotiate a sale to Microsoft.

— AP business writer Jennifer Malloy in New York contributed to this report.