Tensions escalating in battle for Yahoo's board

The showdown intensified late Saturday after Yahoo revealed that it had spurned Microsoft's latest attempt to buy its online search engine in a joint proposal made with activist investor Carl Icahn, who is leading a shareholder rebellion aimed at removing Yahoo's current board.

Icahn, who has no experience running an Internet company, would have been left in charge of Yahoo's remaining pieces had an agreement to sell the search engine to Microsoft been reached.

"It's not surprising that Yahoo would reject an offer like that," Gartner Inc. analyst Andrew Frank said Sunday. "It would be just too complicated to do."

Microsoft declined comment Sunday. Icahn didn't respond to requests for comment.

Yahoo's explanation for rebuffing Microsoft left little doubt that both Yahoo and Icahn are now willing to explore options that they had previously scorned as they appeal to Yahoo shareholders before a pivotal Aug. 1 vote.

The shareholders are being asked to either support the current Yahoo regime that has overseen the Internet icon's recent struggles or roll the dice on an alternate board led by Icahn in hopes of finally working out a deal with Microsoft.

Hoping to fend off the revolt, Yahoo's board is now willing to sell the entire company to Microsoft for $47.5 billion, or $33 per share--a price it rejected as too low 10 weeks ago. But Microsoft has said it has no interest in buying Yahoo in its entirety as long as the company's current board is in place.

Yahoo evidently has concluded it miscalculated by demanding $37 per share in early May, prompting Microsoft to withdraw its bid to the dismay of Yahoo shareholders as they helplessly watched the company's stock price sink back toward $20.

As for Icahn, he is now pushing Yahoo to sell its search operations to Microsoft--an idea that he implored the company's board not to pursue just last month.