Would Icahn's Board Takeover Revive Microsoft-Yahoo Deal? Proxy victory wouldn't guarantee fresh offer, but might renew talks

Carl Icahn is turning up the heat in a last-ditch push to get Yahoo and Microsoft back to the bargaining table, but some analysts doubt the effort will be enough.

A proxy fight from the swashbuckling billionaire investor might pave the way for new talks, but would be only a tiny step toward resurrecting Microsoft's failed takeover of the Web portal, says David Garrity, an analyst for Dinosaur Securities. Microsoft walked away May 3 after three months of negotiations and two spurned bids.

"The question here is: Can Carl Icahn's appearance on the scene as the lead activist investor cause Microsoft to return to the bargaining table?" Garrity said. "The answer is, it's not likely."

On Thursday, Icahn sent Yahoo Chairman Roy Bostock a list of 10 proposed board members to replace Yahoo's current board. If elected by shareholders, the new directors plan to work out a deal with the software giant.

Icahn also said he has purchased 59 million shares and share-equivalents of Yahoo; he's seeking government approval to buy up to $2.5 billion in Yahoo stock.

In his letter, Icahn said he was reacting to the "unconscionable" decision by Yahoo's board to reject Microsoft's $33-per-share bid, worth about $47.5 billion .

"It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft," he wrote.

Icahn got the support late Thursday of hedge-fund manager John Paulson, who owns 50 million shares. As a merger arbitrage specialist, Paulson often bets on the outcomes of such deals.

Yahoo has posted lackluster earnings and sales growth in recent years as it struggles to challenge Google's dominance in the fast-growing multibillion-dollar market for Internet search ads.

Microsoft, which also wants a piece of the market, had hoped to use its engineering know-how to better profit from Yahoo's broad Web audience.

Icahn's proposed 10-member board includes himself; Frank Biondi Jr., a former Viacom chief executive; Edward Meyer, CEO of investment management firm Ocean Road Advisors; Brian Posner, former CEO of Clearbridge Advisors, an asset management company and a unit of investment bank Legg Mason; and Mark Cuban, owner of the Dallas Mavericks basketball team.

Cuban and his partner Todd Wagner sold Broadcast.com, an early Web broadcasting company, to Yahoo for $5.6 billion in 1999.

Ryan Jacob, portfolio manager for the Jacob Internet Fund, which owns Yahoo shares, said Biondi and Cuban were the only names on the list he recognized.

"A best-case scenario is that they can push Yahoo to see if Microsoft is still interested in a combination," Jacob said.

But it might not be that simple. For one, Microsoft may have lost its appetite for such a deal.

"If Yahoo can demonstrate improved performance, that is a consideration that would bring Microsoft back to the table," Garrity said. "But the idea that Microsoft will come back simply because there is a change in the composition of the board -- that reasoning is flawed."

Yahoo's shareholder meeting is scheduled for July 3.

If Icahn can persuade Yahoo shareholders to replace the board, a Microsoft takeover still would likely face close antitrust scrutiny.