Icahn to Yahoo board: Sell to Microsoft or leave

Spurred on by outraged shareholders, Icahn notified Yahoo 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.

Bostock criticized Icahn for having a "significant misunderstanding of the facts" about Microsoft's offer and the Yahoo board'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 current 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," Icahn wrote.

Bostock defended Yang and the Yahoo board in his letter 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," Bostock wrote.

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 in the company. He plans to seek approval from the Federal Trade Commission 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, and then rose to $47.5 billion, or $33 per share, earlier this month.