Microsoft prepares to do battle to oust Yahoo's board of directors

Microsoftset the stage for a full-blown battle to overthrow Yahoo's board of directors yesterday when it declared it was interested in reopening talks to buy all or part of the internet company - but only if a new board was appointed first

The intervention, less than a month before Yahoo's annual meeting, gives backing to the flagging efforts of activist investor Carl Icahn to unseat Jerry Yang, Yahoo's chief executive, and the rest of the board that failed to reach agreement on Microsoft's earlier takeover offer.

It also breathes life into Microsoft's six-month battle with Yahoo, which had fallen into a lull in the three weeks since Yahoo reached a separate search advertising alliance with Google.

After that, Microsoft had left open a proposal of its own to acquire Yahoo's search business, although it had also said it was no longer interested in buying the whole company.

Yahoo's shares climbed by nearly 12 per cent on the news, to $23.89, though they remained below the $33 a share that Microsoft indicated in May it was prepared to pay.

The software developer said it had held talks with Mr Icahn "in the past week", apparently ending a long period in which it had kept its distance from the billionaire investor.

In a letter to Yahoo's board, Mr Icahn said he had spoken "frequently" to Steve Ballmer, Microsoft's chief executive, in the past week, in conversations that "lasted as long as an hour".

Microsoft said that, with another board in place, it would be interested in discussing a deal either to assume Yahoo's search function "with large financial guarantees" for the internet company, or to buy Yahoo outright.

The earlier offer for Yahoo's search business, in which Microsoft would have taken over the service and paid a percentage of the advertising money it received to Yahoo, did not include any revenue guarantees for Yahoo.

Yahoo said it was open to negotiating an offer from Microsoft but that, after an overture of its own last month, Mr Ballmer had said he was "no longer interested even in the price range [Microsoft] had previously indicated."

Turning Yahoo over to Mr Icahn so that he could sell the search business to Microsoft "at a price to be determined in a future 'negotiation'" would not be in the best interests of shareholders, it added.

Microsoft's decision to throw its weight behind Mr Icahn follows a war of words between the software group and Yahoo.